Five AIM income stocks for your ISA in 2025
Award-winning AIM writer Andrew Hore names the handful of smaller companies with attractive dividend yields that investors might consider for ISA portfolios.
21st March 2025 15:13
by Andrew Hore from interactive investor
Having previously covered AIM growth shares for your ISA, this week it's the turn of potential income investments for your tax-free wrapper. These are shares with a range of yields, but they all have potential for long-term dividend growth.
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Hargreaves Services
Price: 652p
Forecast yield: 5.8%
Earthmoving services provider and land assets developer Hargreaves Services (LSE:HSP) has been receiving additional cash distributions of £7 million/year from its German joint venture HRMS, and this has enabled an additional annual dividend of 12p/share. The first additional payment was in 2021, and it appears likely that it will continue for the next few years. The underlying dividend is also increasing. The total dividend last year was 36p/share and could be 37.5p/share this year.
In the six months to November 2024, revenues were 14% ahead at £125.3 million. HRMS made a small profit contribution, compared with a £1.9 million loss in the corresponding period. The core earthmoving business is winning contracts and growing, while the land division contribution can be lumpy.
There are ways that Hargreaves Services can raise cash from disposals and there is potential upside for some valuations. The HRMS stake is likely to be sold in the next seven years. The book value is £70 million.
Another potential source of additional cash is the land holdings and renewable energy developments. Seven renewable energy assets with a book value of £4.1 million are being sold and they could raise more than £12 million.
A full-year pre-tax profit of £16.6 million is forecast with an improvement to £20.3 million next year. Net cash could be £18 million at the end of May 2025, rising to £26 million one year later. Hargreaves Services can easily afford to continue to pay the dividend even if there is volatility in earnings due to the timing of land sales.
The shares have recently gone ex-dividend, and they are trading at just above book value. There is still plenty of upside from the assets plus the attractive yield.
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The Property Franchise Group
Price: 426p
Forecast yield: 3.5%
The Property Franchise Group (LSE:TPFG) has grown its lettings and estate agency operations both organically and via acquisition – the latest purchase being its main rival Belvoir. The benefits of the integration are beginning to show through with more to come from the financial services business, where Belvoir was much stronger. Although the yield is not high, there is potential for rapid growth in the dividend.
The group has more than 153,000 managed rental properties which provide a steady income with rents continuing to rise. The property sales side should be starting to improve, providing further upside. Another acquisition in 2024 took the company into licensing estate agency brands, and this provides additional recurring revenues.
TPFG increased 2024 revenues from £27.3 million to £67.2 million thanks to the contribution from Belvoir. Pre-tax profit is expected to rise from £11.2 million to £22 million, but earnings will be flat with a post-merger boost likely in 2025. The full figures are due to be published on 8 April.
Debt taken on for the purchase of Belvoir has started to come down. It is estimated at £9.1 million at the end of 2024, falling to £4.2 million by the end of 2025, despite the large amount of cash paid out in dividends.
The total dividend for 2024 is expected to be at least 15p/share, up from 14p/share in 2023, rising to 19p/share in 2025 – based on a pre-tax profit of more than £30 million. That makes the 2025 forecast yield 4.5%. There are forecasts that are even higher.
The share price has fallen back since the Belvoir deal was completed. The prospective multiple for 2025 is 12. Buy for income and growth.
Churchill China
Price: 494p
Forecast yield: 7.7%
Trading has been tough for Churchill China (LSE:CHH) because of its dependence on the hospitality market. The balance sheet is strong, though. There was a dividend reduction around 25 years ago, but management has been keen not to cut the payout.
Stoke-on-Trent-based Churchill China manufactures plates and other crockery used in pubs, hotels and restaurants. There is also a small residual retail-focused business.
There was a profit warning last November due to lower than anticipated revenues and lack of seasonal improvement. The 2024 pre-tax profit is expected to be £8.5 million following a trading statement in February. The 2024 total dividend could be 38p/share, up from 36p/share in 2023, and it will still be covered 1.5 times by earnings.
Churchill China has maintained a strong balance sheet despite pouring cash into improving the efficiency of the manufacturing facilities.
The hospitality market could remain weak this year, especially in the UK as National Insurance rises hit the wage bills of pubs and restaurants. This also hits the cost base of Churchill China itself. The investment in productivity and efficiency could help to offset this.
The balance net cash position means that the company can cope with these short-term challenges and continue to fund the dividend. Churchill China has a strong record of selling in the UK and international markets. Profit could be flat this year, and the dividend is likely to be unchanged. Once there is a recovery, the dividend should start to rise again. Buy for recovery.
RWS
Price: 127.6p
Forecast yield: 10%
Intellectual property and translation services provider RWS Holdings (LSE:RWS) has an excellent long-term record, but it has had challenges in recent years and profit has slipped.
In the year to September 2024, there was a 2% dip in revenues to £718.2 million, while underlying pre-tax profit was 11% lower at £106.7 million, even though gross margin improved. The total dividend was 2% higher at 12.45p/share. Net debt was £12.9 million at the end of September 2024.
RWS generated organic constant currency growth in the first quarter, but there is pressure on prices. Growth in volumes, including of AI-based products, should continue to offset price pressure. Cost savings will predominantly come through in the second half.
Ben Faes has joined the board as chief executive. He has worked at AOL and YouTube and has 25 years of experience of sales and business development in technology and media.
Octopus Investments has increased its RWS shareholding to 7.16%. The dividend has consistently increased each year, even when earnings went backwards. This year a total dividend of 12.7p/share is forecast, which is 1.5 times covered by estimated earnings. Borrowings are reducing and RWS should have net cash by 2026.
The prospective multiple is less than seven. Steady, but not rapid growth is anticipated in earnings, but this is an excellent time to buy at a low rating ahead of a share price recovery.
Greencoat Renewables
Price: €0.73
Forecast yield: 9.2%
Dublin-based Greencoat Renewables (LSE:GRP) owns 39 renewable energy generation and storage assets in Ireland, France, Germany, Spain and Sweden. The Andella project in Spain has been forward sold and some disposals of existing assets are being considered. A wind farm in Finland was sold last year at a 6% premium to its net asset value (NAV).
There is still significant demand for investment in renewable energy assets, particularly as AI and other technology requires increasing amounts of power. Long-term power supply agreements help to provide a base for income.
Net debt was €78.8 million (£66 million) at the end of 2024. There is €107 million in cash on the balance sheet and €241 million of undrawn bank facilities.
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There was a small dip in NAV to 110.5 eurocents/share at the end of 2024 because of a decline in asset value of projects. The discount to NAV is 34%.
Greencoat Renewables pays a quarterly dividend and the total 2024 dividend of 6.74 eurocents/share was twice covered by cash generated. The target dividend for 2025 is 6.81 eurocents/share.
The board is keen to reduce the discount to NAV. It is considering a second quotation to enhance the company’s profile and improve liquidity. A new management agreement means that the investment manager Schroders Greencoat will receive 50% of fees based on NAV and 50% on the lower of NAV and market capitalisation.
If interest rates fall, the yield of the shares will become increasingly attractive and that will help the share price to recover. Two partners in Schroders Greencoat have bought nearly €290,000 worth of shares between them during March. Buy for share price upside as well as the attractive dividend.
Andrew Hore is a freelance contributor and not a direct employee of interactive investor.
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