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Taking AIM at sustainable dividends

Published: 13:12 30 Mar 2017 BST

Growing savings

Earlier this week I did a trawl through the Alternative Investment Market (Aim) to identify companies that looked capable of sustained dividend growth.

The trawl came up with 13 companies, which is not an auspicious number, so we dumped those yielding less than inflation (2.3%), trimming the field to six.

In this article I’ll have a closer look to see whether we can whittle the field down further.

NAHL Group

NAHL Group plc (LON:NAH), which trades as the official sounding National Accident Helpline, is yielding an eye-popping dividend yield of almost 12%.

Working in the personal injury claims market, the future is extremely cloudy for the company, and what the 12% yield is telling us is that the market is expecting things to get rocky and for the dividend to be cut or binned altogether.

In my experience the market is very rarely wrong in this instance, and even though the group declared its latest dividend as recently as last week, the board also said it intended to keep the dividend at two-thirds of earnings per share in future; if the earnings go south, so does the divi.

Should we buy it?

I say: NAH.

Before I put my barge pole away, let me also look at …

NetPlay

NetPlay TV PLC (LON:NPT) is being taken over by the splendidly named Swedish interactive gaming company Betsson.

It’s a done deal, so reluctantly we gives this one a miss.

Dillistone

Dillistone Group PLC (LON:DSG) is a software firm serving the recruitment industry.

With a forecast yield of 4.9%, a price/earnings ratio of 13.7 – a shade above its three-year average of 12.4 – and a long history of steadily increasing its dividends after a “reset” (industry code for a cut) in 2010, this looks like one for the proverbial sock drawer.

Zytronic

Zytronic PLC (LON:ZYT) sounds like a sports energy drink but in fact is a maker of touch screen sensors.

My old fashioned screen tells me it is forecast to yield a handy 3.9%, while its price/earnings ratio (PER) of 14.8 is comfortably below the market average, and is just under a full point below Zytronic's three-year average PER of 13.9.

Dividends have consistently risen year-on-year since 2007, so there does not look to be anything here to frighten the horses, particularly as the AGM trading update in February said the company was trading in line.

Somero Enterprises

Shares in Somero Enterprises Inc (LON:SOM) have more than doubled over the last year, yet it is still forecast to yield 2.9% this year.

What in tarnation is going on?

The manufacturer of laser-guided equipment issued its full-year results two weeks ago and all the numbers looked poptabulous – “We achieved record revenues, profits, and cash flow and ended the year with the strongest balance sheet in our history,” said chief executive Jack Cooney.

The number that most interests me is 40%, which is the level of adjusted earnings per share the company paid out, resulting in a 61% increase on the previous year’s pay-out.

So, I’ll happily trouser the divi, and if the company can double in share price again over the next year that would be jolly nice – hang on, it’s a US company – that would be Totally awesome as well.

James Halstead

Results from the floor coverings specialist James Halstead PLC (LON:JHD) are hot off the presses, and (it’s a UK company) utterly splendid they were too, considering the tough environment the group operates in.

The forecast yield is 2.6%, and although the forecast PER at 27.6 is on the high side, the stock traditionally trades on an earnings multiple in the mid-twenties, so it is only a pale pink flag rather than a red one.

Stockbroker AJ Bell is clearly a fan.

“Twenty-six FTSE 100 firms have raised their dividend every year for the past decade but when it comes to consistent increases in the shareholder pay-out few can match AIM-quoted flooring expert James Halstead, whose interim dividend hike today adds to a streak of consecutive increases that stretches back to the late 1970s,” the broker said.

We’ll take their word for it but as Jimmy Cricket used to say, wait – there’s more.

“Adjusting for stock splits in 2006, 2011 and 2012, James Halstead’s dividend has grown from 0.016p a share in 1977 to 12p for the year ending June 2016.

“Today’s 7.1% interim payment hike to 3.75p paves the way for the 8% increase in the Total dividend to 13p for the year to June 2017, further buffering Halstead’s reputation,” it said when the results came out.

Enough. It goes into the Aim Sustainable Dividends Portfolio, which we’ll keep track of and revisit once a month.

We’ll start with (a virtual) £10,000 and invest in parcels of £1,000.

Those of you who have been following the disastrous Bombed Out but Bouncing Back portfolio will know better than to blindly invest real money in this; the portfolio should be considered to be for educational purposes only.

Followers of the Bombed Out portfolio will also be aware that I deliberately chose to factor in bid/offer spreads and an assumed dealing cost of £15 per transaction, to illustrate the madness of a high-frequency trading strategy, so it seems only fair to do the same with this portfolio.

That being said, this is likely to be a “long-term buy-and-hold” portfolio, so I am hopeful that bid/offer spreads and dealing costs will not take too large a bite out of it.

Company

No, of shares

Total cost

Average price paid

Current price

Current value

Profit/ Loss £

Profit/ Loss %

Dillistone

1,120

£1,001

89.34p

84p

£941

-£60

-6.0%

James Halstead

195

£998

511.69p

499.25p

£974

-£24

-2.4%

Somero

313

£1,001

319.79p

310p

£970

-£31

-3.1%

Zytronic

229

£1,000

436.55p

420p

£962

-£38

-3.8%

 

  • Cash: £6,000.95
  • Market value of current holdings: £3,846.44
  • Total dividends: 0
  • Profit/loss on closed trades: 0
  • Unrealised profit/loss on current holdings: -£152.61
  • Total profit/loss: -£152.61

 

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