Dividends paid out by companies on the London Stock Exchange’s (LSE) junior segment – the Alternative Investment Market (Aim) – are set to pass £1 bn ($1.28 bn) for the first time, according to a new report from Link Asset Services.
Over the past six years, dividends on the junior market have grown at an average annual rate of 18.6 percent, according to Link’s inaugural Aim dividend monitor report – a figure that’s almost four times faster than the growth rate achieved on London’s main market, the firm notes.
Link is predicting dividends from Aim-listed companies to grow by 19.6 percent in 2018 to a record £1.16 bn, ‘with at least 14 percent further growth expected in 2019’, according to a press release announcing the report publication.
While a smaller percentage of Aim-listed companies pay a dividend compared with those on the main market – one third versus four fifths on the main market, according to Link – a number of factors have contributed to the three-fold increase in dividends from Aim-listed companies between 2012 (when they totaled just £417 mn) and 2018.
As well as more new listings, these include the ‘increasing maturity of many Aim companies, the larger size of new listings and a speedier path to dividend payment,’ states Link in its press statement. It also notes that unlike the main market, Aim dividends ‘depend less on a few large companies and have a broad sector mix’, while main market payouts ‘are dominated by huge multinationals, particularly in oil, resources and banking.’
The diversity of the junior market is the focus of a press comment from James Henderson, manager of the Henderson Opportunities Trust, an investment trust listed on the LSE.
‘Aim is an enormously diverse market, much more so than the main market,’ he notes. ‘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.’
Corporate governance requirements are set to be tightened across the Aim market, with new rules coming in on September 28 requiring listed companies to detail which corporate governance code they follow, along with a narrative description of how they apply the principles of that code.
Also commenting on the predicted £1 bn breakthrough in Aim dividends, Marcus Stuttard, head of Aim and UK primary markets at LSE Group, notes how the junior market has changed since its launch in 1995.
‘In the 23 years since the launch of Aim, more than 3,800 UK and international companies have joined to raise more than £110 bn through IPOs and follow-on issuances,’ he says. ‘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 10 years. Today there are more companies joining at a later stage of growth, able to generate cash to pay dividends back to investors.’