Before I begin, I feel that a quick clarification on my headline is needed. I’m not suggesting for one second that dividend hunters ignore the FTSE 100. A regular theme of The Motley Fool is to pick out some of the best income shares on Britain’s elite stock index.
However, many investors still remain fixated upon London’s major indices and as a result are overlooking many opportunities to make a mint elsewhere. For this reason I’m taking a look at the Alternative Investment Market (AIM) and some of the terrific shares on this junior index.
The billion dollar beauty
A report released today by Link Asset Services underlined the gargantuan rewards on offer from AIM. It estimates that dividends paid by companies on this market will surge through the £1bn barrier for the first time this year.
The shareholder services provider notes that, during the past six years dividends on this junior market hasve swelled by an annual rate of 18.6%, around four times faster than main market dividend growth which stands at a more miserly 4.9%.
And Link Asset Services is predicting growth of 19.6% in 2018 to a record £1.16bn. An extra 14% rise — to £1.32bn — is projected for 2019, too.
Justin Cooper, chief executive of Link Asset Services, commented: “The value of capital being returned to investors via dividends is still much smaller than the amount being raised for investment, but the speed at which dividends are growing shows that more and more companies are coming of age, and reaching that important milestone where they generate more cash than they absorb.”
Cooper identified three reasons why shareholder payouts are surging at these young businesses. “First, and most importantly, many companies on AIM are maturing, so distribution is becoming an important part of their investment story. Secondly, the size of new companies joining AIM is larger, and larger companies generally tend to pay bigger dividends. Finally, new companies joining AIM are paying dividends at an earlier stage than in the past.”
The exceptional returns available from AIM companies is something I have covered time and again. Just last week, I lauded Springfield Properties and the 5% yields it offers. Telford Homes is another British housebuilder in shape to keep on delivering above-average dividends, while Summit Germany is in great shape to exploit the homes shortage in Central Europe as well.
Animalcare is another white-hot income pick from the junior index. This share offers a yield of above 4% and looks in great shape to ride booming demand for animal medicines as its drugs pipeline comes alive.
Those seeking eye-popping dividend growth need to look at touch screen manufacturer Zytronic, too. Profits have disappointed in 2018 but things have picked up again in the second half, and its growing footprint in the gaming industry in particular bodes well for the long term, as does its rising might in the US and Asia. Indeed, this bright outlook prompted Zytronic to double the interim dividend to 7.6p per share.
There are more than 800 companies on the AIM index, a great number of which carry brilliant dividend forecasts in the near term and beyond. So don’t miss out… get hunting today!
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.