Dividends from the AIM market (formerly the Alternative Investment Market) have rebounded strongly having shown “remarkable” resilience through the pandemic compared to the main market, according to Link Group’s latest AIM Dividend Monitor.
During 2020, regular dividends fell 39% to £753m – which was on the better end of Link Group’s expectations. The headline total (including special dividends) fell to £814m.
Dividends from the AIM market fell 40.4% between April 2020 and March 2021, (the first four quarters of the pandemic), which was slightly better than the 41.6% decline on the main market.
AIM dividends fell to a level last seen in 2016, compared to wider market dividends which declined to 2011 levels.
Link Group found that although two thirds of AIM companies that usually pay a dividend cut or cancelled payouts – it was no worse than the wider market.
Source: Link Group UK Dividend Monitor
The reason why the dividend decline on AIM was no worse than on the main market was down to the heavy concentration of dividend payers on the main market, Link Group said.
The five largest dividend payers on the London stock exchange typically contribute 35% of the total paid, whereas on AIM the top five are only responsible for 17%.
This concentration proved detrimental when four of the FTSE All Share’s top payers of 2019 cut or cancelled dividends in 2020 – which between them accounted for 43% of the decline in UK dividends during the pandemic.
By contrast, the top five payers on AIM contributed only 18.7% to the fall, roughly in line with their overall share of total AIM dividends.
AIM also has no banks, which were barred by the Prudential Regulation Authority from paying dividends during the pandemic. Banks normally make up £1 in every £7 of dividend pay-outs on the main market, Link Group said.
Ian Stokes, managing director, corporate markets EMEA at Link Group said: “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. Even though relatively few AIM companies habitually pay dividends, those that do tend to grow them faster than the main market.”
Source: Link Group UK Dividend Monitor
The AIM market’s underlying dividends (which exclude one-off special dividends) rose 56.6% to £265m in the second quarter of 2021. The headline total rose by 37%, held back by lower one-off specials which had hit a record in the first quarter, Link Group said.
For the first half of 2021 overall, underlying dividends were 7% better than Link Group’s best-case forecast made a year ago, before vaccine approvals were on the horizon.
For the same period, headline growth was 40.7%, and the rebound in underlying AIM dividends was more than twice as strong as the main market in the first half.
The main drivers behind the rebound in the second quarter of 2021 were the cyclically sensitive sectors such as industrials, property and building materials, Link Group found. Technology companies also made a significant contribution to growth.
However, the second half of 2021 is likely to experience a slower growth rate than the second quarter, Link Group warned, with dividends up 24.2% on an underlying basis.
Dividend declines last year also became smaller with each passing quarter, so the comparisons become less favourable, it added.
For the full year of 2021, Link Group expected AIM dividends to rise 32.2% on a headline basis to a total of £1bn.
The underlying increase is expected to be 21.9%, which is significantly faster than Link Group’s forecast for the wider market.
If this 2021 total is reached, it would restore AIM’s dividends back to a level last reached in late 2018.
Stokes said: “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.”