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AIM dividends see strong first-half rebound with growth of 40.7%

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File photo dated 6/2/2018 of a view of the London Stock Exchange sign in the City of London. The London Stock Exchange Group (LSEG) upped its full-year dividend on Friday as it managed to increase profits during Covid-19. Pre-tax profit rose to �685 million in 2020, up from �651 million a year earlier, on revenue of �2.1 billion, up 3%. Issue date: Friday March 5, 2021.
AIM dividends performed well in comparison with the main market — the rebound in underlying AIM dividends was more than twice as strong as the main market in the first half. Photo: PA

Dividends paid by the AIM, the London Stock Exchange's market for small and medium size growth companies, have thrived in a post-pandemic economy. First-half growth came in at 40.7% compared with the previous half, according to new data compiled for the Link Group dividend monitor. 

The recovery began in earnest in the second quarter of 2021, the group said. Underlying dividends (which exclude one-off special dividends) soared 56.6% to £265m ($365m). 

The headline Q2 figure was held back by lower one-off specials and rose 37%, following record special dividends in the first quarter. 

For the first half of 2021 overall, underlying dividends were seven percentage points better than Link Group’s best-case forecast made a year ago, before vaccine approvals were on the horizon. 

“AIM companies are more vulnerable to economic disruption than their multi-national counterparts," said Ian Stokes, managing director, Corporate Markets EMEA at Link Group said. "They are less diversified and have more limited access to funding so they must move quickly to preserve cash to ensure they can ride out a brewing storm."

Stokes notes that despite this, companies have come through the pandemic in good shape, eager to restart dividends. 

Read more: UK business confidence climbs to highest since April 2017

"The recovery has been blisteringly fast so far," he said. 

AIM dividends also performed well in comparison with the main market. The rebound in underlying AIM dividends was more than twice as strong as the main market in the first half.

Meanwhile, every sector saw higher dividends in Q2. Industrials, property, and building materials led the charge, all cyclically sensitive sectors enjoying a rebound, but IT companies also made a significant contribution to growth.

During 2020, underlying payouts fell to £753m, a 39.4% decline, towards the better end of Link Group’s expectations. 

The headline total (including special dividends) was £814m. Between April 2020 and March 2021 (the first four quarters of the pandemic) AIM payouts fell 40.4%, slightly better than the 41.6% decline on the main market. 

AIM dividends fell back to a level last seen in 2016, but wider market payouts declined to 2011 levels. And two thirds of AIM companies that usually pay a dividend cut or cancelled their dividends. This too was no worse than the wider market.

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Link Group said that the second half is likely to see a slower growth rate than in Q2 and that it expects payouts to rise 24.2% on an underlying basis. 

This is slower than Q2 because a few companies delayed their payments in 2020 and these timetable effects are mostly going to unwind later this year. Dividend declines last year also became smaller with each passing quarter, so the comparisons become less favourable.

Link Group expects AIM dividends to rise 32.2% for the full year 2021 on a headline basis to a total of £1.1bn. The underlying increase is set to be 21.9%, significantly faster than Link Group’s forecast for the wider market. The 2021 total would therefore restore AIM’s payouts back to a level last reached in late 2018.

"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," said Stokes. 

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