Dividends paid by UK companies listed on the Alternative Investment Market, London’s junior stock market, are set to burst through the £1bn mark in 2018 for the first time, according to the inaugural annual AIM Dividend Monitor from Link Asset Services.
The total for 2018 is set to reach £1.16bn, almost three times larger than the mere £417m they distributed to shareholders in 2012. Over the last six years, AIM dividends have surged at an average annual rate of 18.6%, almost four times faster than the 4.9% annual growth rate achieved on the main market. 2018’s total will be 19.6% higher year-on-year, easily a new record.
For a stock market designed to foster the ambitions of fledgling companies, it’s perhaps a surprise that between 2012 and the end of 2018, AIM companies will have paid their investors a staggering £5.5bn in dividends.
There are some important differences to the main market. First, only one in three AIM companies pays a dividend (though this proportion has been rising), compared to four-fifths of those on the main market. The yield (which compares dividends to the market value) is also lower at 1.2% compared to the main market’s 3.9%, though if you exclude those that pay nothing, the average yield is 2.1% (compared to 4.2% on the main market). This level compares favourably to other assets like government bonds or cash. But AIM dividends are more diversified than those on the main market. The top ten largest payers on AIM only account for 24% of the total, compared to more than half the total on the main market. AIM payouts are also dominated by UK-focused firms, many of them in manufacturing and industrial services, with IT also featuring prominently. Main market payouts, by contrast, are dominated by huge multinationals, particularly in oil, resources, and banking.
New listings have contributed to the growth in AIM’s total dividend payments. Companies listed since 2012 paid £940m in dividends between 2013 and the middle of 2018, equal to a fifth of the total paid by all AIM companies in the same period. Of course, companies also leave AIM because small companies are often taken over, are sometimes taken private, move onto the main market, and occasionally simply fail. For example, Conviviality, the drinks wholesaler, listed in 2013, paid £22m in dividends in 2017, and went bust in 2018. If we adjust for companies joining and companies leaving AIM, then AIM’s dividends more than doubled between 2012 and the middle of 2018, an annualised growth rate of 15%, still three times faster than the main market.
Link Asset Services expects growth to continue. After a record 2018, up 19.6% to a record £1.16bn, Link expects AIM companies to post double-digit growth again in 2019, taking the total paid over £1.3bn, up at least 14%.
Justin Cooper, CEO of Link Market Services said: “We rightly associate AIM with young companies, hungry for capital to grow. The value of capital being returned to investors via dividends is still much smaller than the amount being raised for investment, but the speed at which dividends are growing shows that more and more companies are coming of age, and reaching that important milestone where they generate more cash than they absorb. It’s frankly astonishing to see such consistent and such dramatic growth year in, year out.
“Three factors lie behind the trend to higher AIM payments. First, and most importantly, many companies on AIM are maturing, so distribution is becoming an important part of their investment story. Secondly, the size of new companies joining AIM is larger, and larger companies generally tend to pay bigger dividends. Finally, new companies joining AIM are paying dividends at an earlier stage than in the past.”
Richard Power, Head of Small Companies at Octopus Investments said: “People often underestimate the dividend-paying capacity of AIM companies. Early-stage fledgling stocks are hungry for new capital, and so don’t tend to pay dividends, but there are hundreds more which are maturing steadily and beginning to generate cash, even after their investment needs are satisfied. Not only are their profits growing, which is supporting dividend growth, but they are increasing the proportion of profits that they distribute too. That means dividend growth can easily outstrip the larger stocks on the main market, many of which have struggled to grow payouts at all in recent years.”
James Henderson, manager of the Henderson Opportunities Trust, an investment trust listed on the London Stock Exchange said: “AIM is an enormously diverse market, much more so than the main market. At one end, there are hundreds of very small, very new companies right at the beginning of their lifecycle, and at the other there are some much larger, mature companies generating a lot of cash. Often, some of the bigger dividend contributors were formerly listed on the main market but got into difficulties. They raised new capital, and stepped down onto AIM. These, like Johnson Services Group, and Scapa, were used to paying dividends before they joined AIM, and continued that custom once they were fully back on their feet. Finally, corporate governance best practices are spreading on AIM, especially as companies mature, and dividend paying often comes as part of that package.
“Investors will rarely go to AIM looking primarily for income, but there’s no doubt dividends are a growing part of an AIM investor’s total return.”
Marcus Stuttard, Head of AIM and UK Primary Markets, London Stock Exchange Group said: “In the 23 years since the launch of AIM, more than 3,800 UK and international companies have joined to raise over £110 billion through IPOs and follow-on issuances. In that time the market has grown and matured, and we’ve seen the average market cap of AIM companies more than double in the past ten years. Today there are more companies joining at a later stage of growth, able to generate cash to pay dividends back to investors.
“AIM is proud support the growth of scaleups across the spectrum with deep pools of patient growth capital. It’s notable that two-thirds of all the money raised on AIM has been through further issuances, demonstrating investors’ long-term confidence in the market.”