Dividends have almost recovered on London’s junior stock market but a recession threatens to sink investors reliant on smaller companies, a new report has warned.
Businesses trading on the Alternative Investment Market, or Aim, boosted dividends by 20pc in the first six months of the year, paying out £492m. This rose to £574m when including “special” dividends, according to data firm Link.
Payouts have recovered from pandemic lows much faster than their counterparts on London’s main market, Link said, and hit £1.2bn in 2021 – 60pc more than the year before.
However, the outlook was not rosy for both dividends and share prices. Ian Stokes, of Link, warned Aim payouts were unlikely to exceed the pre-pandemic level and growth could fall back dramatically next year.
He said stocks would pay £1.1bn this year – but this was excluding special payouts, meaning this year could still surpass the 2021 figure.
However, Mr Stokes added: “Moving into 2023, we expect dividend growth to slow. Profit margins are under pressure and a potential recession is on the cards, which will affect both the ability and willingness of Aim companies to return cash to shareholders.”
He said underlying dividends could still grow between 2pc and 5pc if the recession was not too severe, but the overall payout figure could go down as companies hold back on special payouts.
He also warned junior stock market investors should prepare for more share price falls, particularly as economic uncertainty weighed heavily on smaller businesses. Some £39bn has already been wiped off Aim stock values in the past year.
Where to find the best dividends
Link data showed that the largest dividend payer in the first half of this year was FeverTree Drinks, which handed shareholders £62m. It was followed by RWS, a communications specialist, which paid out £33m. However, shares in both companies have suffered this year, falling 69pc and 43pc respectively.