AIM beats main market on dividends during the pandemic

Research by Link Group has found the junior market held up better during the pandemic than its big brother.

Dividends paid out on the AIM stock market outperformed the main market during the pandemic, research has found.

The annual ‘AIM Dividend Monitor’ put together by Link Group identified what it called “remarkable resilience” in AIM company shareholder payouts between April 2020 and March 2021.

AIM dividends fell slightly less than the main market on an underlying basis with a 40.4% overall fall, compared with a 41.6% average slide for the main market.

AIM payouts fell back to a level last seen in 2016, while the main market’s payouts sank to 2011 levels.

Link also found that AIM dividend payers were no more likely to cut dividends either, despite often having less financial flexibility than their bigger counterparts. Both markets saw two-thirds of dividend-paying firms either cut or cancel their payouts.

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In sector terms, industrials, retailers and travel firms cutting their dividends had the biggest impact on the totals, while basic consumer goods companies held up the best, Link found.

Link also pointed out that the main market’s greater concentration was a factor in it losing out to the AIM. The five largest dividend payers on the main market have contributed 35% of the total payout on average, but on the AIM the top five account for only 17% of dividends.

The top four payers on the main market - Royal Dutch Shell (LSE:RDSA), HSBC (LSE:HSBA), BP (LSE:BP.) and Rio Tinto (LSE:RIO) - all cut their dividends during the pandemic, which hit the total figure hard.

The research also shone light on a notable rebound under way across AIM, with a 56.6% jump in payouts during the second quarter of 2021. The rise was seen across every sector, with cyclicals leading the way.

Headline dividend growth for the first half of 2021 was 40.7%, putting the rebound in AIM dividends at more than twice that of the main market.

Link Group is forecasting 32.2% annual dividend growth on a headline basis for the AIM, to a total of £1,076 million. The underlying increase is set to be 21.9%, which is significantly faster than the main market.

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During 2020 as a whole, underlying AIM payouts fell to £753 million, a 39.4% decline, towards the better end of Link Group’s expectations. The headline total, including special dividends, was £814 million.

Ian Stokes, managing director, corporate markets EMEA at Link Group, commented: “AIM companies are more vulnerable to economic disruption than their multi-national counterparts.

“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.”

“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. 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.”