AIM is set to shake off its reputation as a haven for dividend dodgers, with pay-outs by AIM companies set to pass a significant milestone.
The AIM Dividend Monitor from Link Asset Services says dividends paid by companies listed on AIM are set to rise by 19.6% year-on-year in 2018 to a record level of £1.16bn.
If the report’s prediction is on the money, 2018 would be the first year in which dividend payouts, in aggregate, have surpassed the £1bn mark.
To be sure, the market is still not the first port of call for income investors, with the Monitor asserting that “AIM companies as a whole are still absorbing much more capital for investment than they are returning to shareholders” but the trend towards more of them paying dividends in on the rise.
According to the report, one-third of AIM’s companies now pay dividends, compared to just one-quarter in 2012.
“We expect 257 AIM companies to pay a dividend this year, just under one-third of all those listed on the exchange. The number paying has stayed steady over the last three years despite an ongoing decline in the number of companies listed on AIM,” the report said.
AIM is still lagging way behind the main market in this regard, where almost four-fifths of the companies pay out dividends but then again, the amount paid out by AIM companies since 2012 has grown three times faster than the sums paid out in aggregate by companies with full listings.
It is also likely that some companies that have made it to the stage where they feel confident of paying dividends are also ready for a move up to the main market – or get taken over.
According to the AIM Dividend Monitor, 439 different companies have paid at least one dividend since 2012 and the compilers of the report estimate that slightly more than 100 of these are no longer listed on AIM.
AIM companies to yield a collective 1.2%
With the need to plough profits back into a growing business, AIM companies are also less likely to be generous with their return of cash to shareholders than their counterparts on the main market, many of which are mature businesses chucking off cash.
Over the next 12 months, Link Asset Services expects AIM companies to yield a collective 1.2%; that figure is calculated by dividing the amount AIM companies pay out in dividends by the market capitalisation of all the companies on AIM (and then expressing that as a percentage).
The projected yield compares to a yield of 2.7% for the mid-cap sector on the main market and 4.0% for the FTSE 100.
“The main market overall (which includes companies outside the top 350) will yield 3.9%,” the report projected.
Statistics, of course, are meant to be manipulated (“damn lies” and so on) and the report observes that if one were to strip out those AIM companies that do not pay a dividend, the yield rises to a more respectable 2.1%, give or take a percentage point or three.
“This is much closer to the main market mid-cap payers’ 2.9% and the top 100’s 4.2%. On this measure, it also leaves the yield on dividend-paying AIM companies ahead of other asset classes like bonds and cash, and it comes with growth,” the report observes.
AIM beginning to come of age
But not guaranteed growth, obviously …
“We rightly associate AIM with young companies, hungry for capital to grow. Since 2012, £9.6bn of IPOs have floated on AIM, according to the London Stock Exchange. Meanwhile, firms have tapped investors for an additional £23.6bn in issues of new shares to help them finance their investment needs. Not all of this is by UK companies on AIM, but even so, it shows that AIM is fulfilling its function of providing access to equity finance,” the report’s writers asserted.
The writers claim that AIM is beginning to come of age, with the rapid growth in dividend payments indicating that “more and more companies are reaching that important milestone where they generate more cash than they absorb”.
Link Asset Services predicts that dividend payments by AIM companies will again grow by a double-digit percentage; it forecasts more than £1.3bn will be paid out in 2019.