Investors hoping to draw an income from their holdings might be surprised by the number of AIM companies rewarding shareholders with a dividend. As of May 2020, AIM dividends have tripled since 2012, compared to a 45% increase on London’s main market pay-outs.
How come the majority of AIM companies do not pay a dividend?
High grow targets mean that AIM companies tend to prefer to reinvest any profit made from operations, rather than redistribute to shareholders. This is perhaps expected considering AIM is a growth market.
What are the reasons behind certain AIM companies paying a dividend?
Although a growth market, AIM has matured a great deal in its 23-year history, and so have a lot of the companies listed. As a result, a dividend can act as an acknowledgement of more stable operating conditions, as well as an acknowledgement that growth forecasts are now lower than some of the newcomers to the market. Either way, it is a means to keeping shareholders invested in the company.
The presence of a dividend can also be an important tactic for attracting further investment by flagging that the company is generating cash and feeling confident about the future.
How is the dividend yield calculated?
Shown as a percentage, the dividend yield is a financial ratio that shows how much a company pays out in dividends every year in relation to its share price. It is calculated by dividing the value of dividends paid in a certain year per share of stock held by the value of one share of stock.
Dividend Yield = annual dividend per share / current price for one share of stock
For example, if a stock’s current share price is 100 pence and it pays dividends at a 5 pence annual rate, its dividend yield is currently 5%.
Should you be cautious of a high yield percentage?
An important factor to bear in mind is that the yield is shown in relation to its current share price. Therefore, should the share price drop but the dividend remain the same as what was distributed, the dividend yield will rise. As a result, you are likely to notice a large number of especially high yields for AIM companies. These numbers, however, need to be considered against their recent share price performance.
The dividend yield also needs to be considered against the fundamentals of the company in terms of its ability to pay a dividend in the future. For instance, investors may like to consider whether or not there have been any recent acquisitions or investments made to facilitate further growth but would have impacted the cash available.
Which AIM companies will pay shareholders a dividend?
As of May 2020, AIM dividends have tripled since 2012, compared to a 45% increase in pay-outs on London’s main market. Bellow, is the number of AIM companies paying dividends in 2020 in order of Ex-dividend date upcoming: