The FTSE 100 is a lucrative venue for investors seeking a reliable and large passive income. That’s not to say investors shouldn’t shop elsewhere for dividend opportunities, though. The Alternative Investment Market (AIM), for instance, is also packed with shares that generate a long-term second income.
London’s junior stock market mostly consists of smaller companies where dividends can be less predictable. They don’t boast the strong balance sheets, economies of scale, or operational resilience that FTSE 100 businesses often enjoy.
However, AIM stocks can sometimes grow their dividends more sharply as their earnings take off. Furthermore, not all AIM companies are market minnows. Some of them are stable, large-cap companies who choose to stay off the UK’s main market because of the lighter regulatory landscape.
With this in mind, let’s see how investors could make a regular £1,000 passive income with a portfolio of AIM shares.
Green giant
Renewable energy provider Greencoat Renewables (LSE:GRP) could be a good place to start. Electricity demand remains largely constant at all point of the economic cycle, providing companes like this with excellent earnings visibility and reliable cash flows to fund dividends.
On the downside, unfavourable weather conditions can significantly impact electricity generation and consequently revenues. However, Greencoat’s wide geographical footprint helps reduce (if not totally eliminate) this danger. Its 40-strong asset portfolio takes in Ireland, Germany, Sweden, France, and Spain, protecting power generation from localised issues.
I expect dividends here to rise strongly over the long term as demand for greener energy increases. It’s returned €350m worth of cash to shareholders since its initial public offering (IPO) in 2017, and has earmaked another €383m worth between now and 2029.
For 2025, the company’s dividend yield is an enormous 9.5%.
Other AIM stocks to consider
Asset manager Polar Capital‘s another high-yielder worth serious consideration. Its forward yield is 10%, and it could deliver sustained payout growth as financial services demand steadily grows. Be mindful that economic turbulence could cause temporary earnings issues.
Insolvency specialist Begbies Traynor is also sensitive to economic conditions, albeit for different reasons. But its commitment to acquisitions could still deliver strong long-term returns. The forward dividend yield here is 3.7%.
I believe Wynnstay‘s 4.8% yield merits a close look too. While exposed to commodity price volatility, its animal feed and agricultural businesses offer the potential for steady growth.
Rounding off our mini portfolio, I’m also confident Michelmersh Brick — which carries the same near-5% yield — could overcome interest rate pressures and grow profits and dividends as housebuilding activity ramps up.
Thinking long term
No dividend is ever set in stone. And shareholder payouts from AIM shares can in theory be more volatile from year to year.
But this is where a diversified portfolio like the one I’ve laid out comes in. Spreading one’s exposure across sectors and regions can boost the stability of one’s passive income over time.
I believe the 6.6% average dividend yield across this mini portfolio makes it worth serious consideration. A £182,000 investment fund spread equally across these income stocks could generate a monthly passive income of £1,000.
Most people don’t have a spare £182k knocking around. But a fund of this size could be achieved with a £500 monthly investment over 15-and-a-half years, assuming an average annual return of 8%.
