InvestmentsSep 1 2021

AIM dividends to recover by 2023 after 57% surge

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AIM dividends to recover by 2023 after 57% surge

Dividends paid by companies listed on AIM will reach normal levels by 2023 after rising 56.6 per cent in the second quarter of this year, Link Group has said.

Underlying dividends (which exclude one-off special dividends) paid by AIM firms rose to £265m in Q2 after falling 40.4 per cent in the year to March when markets were rattled by the coronavirus pandemic.

Link said in the first half of this year underlying dividends were 7 percentage points higher than its best-case forecast made a year ago, before vaccine approvals were anticipated, with headline growth being 40.7 per cent.

However, the firm expects to see a slower growth rate in the second half of the year, with underlying payouts projected to rise 24.2 per cent.

This is primarily due to the winding down of the payment of delayed dividends, as well as the impact of a reduction in dividend declines last year leading to less favourable comparisons.

Overall, Link Group expects AIM dividends to rise 32.2 per cent this year on a headline basis, with £1.1bn paid out. 

Ian Stokes, managing director of corporate markets EMEA at Link Group, said: “Even though relatively few AIM companies habitually pay dividends, those that do tend to grow them faster than the main market. 

"We are confident AIM’s dividends can regain their previous highs by some time in 2023, almost two years sooner than our expectation for the main market.”

He added: “The pandemic has certainly been stormy, but despite the worst recession in two centuries, AIM companies have come through in good shape. They have been eager to restart dividends and the recovery has been blisteringly fast so far.”

Dividends declining

Between April last year and March this year, AIM payouts fell 40.4 per cent, compared with a 41.6 per cent decline in the main market. 

Two thirds of AIM companies that normally pay dividends cut or cancelled these payments during the pandemic, a similar figure to the main market. AIM dividends also fell back to a level last seen in 2016, but the wider market investor payouts declined to 2011 levels.

Link Group said the top five dividend payers in the main market typically contributed around 35 per cent of the total paid, whereas on AIM the same number were responsible for 17 per cent of total payouts.

This hampered the main market when four of 2019’s top payers (Shell, HSBC, BP and Rio Tinto) cut or cancelled their dividends, accounting for 43 per cent of the fall in UK plc payouts between March 2020 and April 2021. 

In contrast, the top five firms on AIM contributed 18.7 per cent of the fall in payouts.

The main market was further hampered by the PRA banning banks from paying dividends during the start of the pandemic, which normally contribute £1 in every £7 of dividends on the main market. There are no AIM banks, which added to the slightly slower decline. 

New rules 

Yesterday (August 31), LCP warned that the pace of dividend recovery for UK companies could be put at risk due to new pension rules coming into force on October 1.

The new rules, stemming from the Pension Schemes Act 2021, will beef up the watchdog’s scrutiny of shareholder dividends to a new level for sponsors of defined benefit pension schemes.

The consultancy warned company directors and others involved could face a legal challenge if a dividend payment leads to a “material reduction” in the recovery that a DB pension scheme can expect to get in the event of a hypothetical insolvency. 

sally.hickey@ft.com