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10 of AIM's best income plays
Dividend cuts by the UK's largest companies are rare. Yet the recent slicing of payouts by the likes of Provident Financial (PFG), Admiral (ADM) and Pearson (PSON) prove that they do happen from time to time. It's a reminder for dividend investors that, while big companies still account for the bulk of payouts, good quality smaller stocks should not be ignored in the search for income.
In the second quarter of this year, FTSE 100 (UKX) companies paid out £28.6 billion in dividends, according to Capita Asset Services. By contrast, shares in the mid-cap FTSE 250 (MCX) index paid out £4.0 billion and those in the smaller indices paid out £0.6 billion.
Yet a big chunk - £18.4 billion - of the overall total was paid by just 15 companies. It illustrates just how concentrated UK dividend payments are. A small band of companies play a disproportionately important role in the dividend machine. So, when large, high yielding companies cut their dividends, it can have a dramatic impact on investors.
Looking ahead, the forecast dividend yield for the market over the coming 12 months currently stands at 3.7%. FTSE 100 stocks offer an average prospective yield of 3.8%, while the mid-caps are set to yield 2.6%, according to Capita.
Yet, with some digging, it's possible to match or beat those yield forecasts by exploring perhaps less well-known companies across the market.
One option is to take advantage of the potentially attractive tax environment on the Alternative Investment Market (AIM). Most AIM shares can be bought in an ISA or SIPP, are exempt from stamp duty and may qualify for up to 100% exemption from inheritance tax. While it's true that AIM companies tend to be smaller and riskier, some are forging reputations for both high quality and strong yields.
To get started, we've used this week's column for Interactive Investor to do some routine exploring of the AIM market. We went looking for above average yields and dividends that are well covered by earnings. We used Stockopedia's StockRank to focus on companies with the strongest exposure to a blend of attractive value, strong quality and positive momentum - from zero (poor) to 100 (very good).
|Name||Mkt Cap £m||Forecast Dividend Yield %||Forecast Dividend Cover||Dividend Growth Streak||Stock Rank™|
|Central Asia Metals||288.9||6.2||1.5||3||97|
|H & T||117.8||3.5||2.3||2||99|
|Impax Asset Management||135.9||3.2||1.9||8||78|
The result of this screening approach is a list of companies that are reasonably well known among hardened small-cap company investors. All of them have forecast yields of over 3.0%.
With a forecast yield of 6.2%, mining group Central Asia Metals (CAML) leads the list. Small, AIM listed mining companies have tended to be highly speculative in the past, and there are always risks. But at the very least, this one is consistently profitable.
Others range from the the highly profitable online performance marketing business, XL Media (XLM), to the internet TV services specialist, Amino Technologies (AMO) and the ceramic tableware producer, Portmeirion (PMP).
In most cases, the companies have grown their dividend payouts for at least two years, with companies like Impax Asset Management (IPX), Zytronic (ZYT) and James Halstead (JHD) boasting dividend growth streaks of eight or nine years.
It's important to remember that AIM stocks are some of the smallest and most speculative companies in the market. So for income investors who need certainty, careful research is essential. Yet there is a growing contingent of companies on AIM that are consistently proving to be high quality, sustainable businesses that are committed to progressive dividend payout policies. So, in the search for good quality, dividend yielding shares with the power to grow, AIM could be worth investigating.
Interactive Investor's Stock Screening series is written by Ben Hobson of Stockopedia.com, the rules-based stockmarket investing website. You can click here to read Richard Beddard's review of Stockopedia.com and learn more about the site.
Interactive Investor readers can enjoy a completely FREE 5-day trial of Stockopedia by clicking here.
It's worth remembering that these and other investment articles on Interactive Investor are simply for generating ideas and if you are thinking of investing they should only ever be a starting point for your own in-depth research before making a decision.
*No fee for publication is involved between Interactive Investor and Stockopedia for this column.
About the Author
Ben Hobson is Investment Strategies Editor at Stockopedia.com. His background is in business analysis and journalism. Ben researches and writes regularly on investment strategy performance and screening ideas for Stockopedia.com. He is the author of several ebooks including "How to Make Money in Value Stocks" and "The Smart Money Playbook"
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
|IMPAX ASSET MANAGEMENT GROUP||150.76p||1.18%|
|CENTRAL ASIA METALS||254.50p||-0.49%|
|FTSE MID 250||£20,130.49||-0.08%|
|All data 15min delayed as of: 11:07:12 23/10/17|