UK Dividend Monitor Q3 2022

07 September 2022 / Link Group

AIM dividends rebound strongly from pandemic

Underlying payouts jumped by a fifth in H1 2022, following strong 2021

• H1 22 headline dividends of £574m, up 7.4% on a headline basis, or 19.8% once volatile special dividends are excluded
• ​2021 saw headline growth of 60.0%; underlying 39.3%
• Payouts from financials have recovered to pre-pandemic levels, but largest contribution to H1 growth came from building materials
• Link Group expects 29% of AIM companies to pay a dividend this year, one tenth lower than pre-pandemic levels
• Link Group expects 13.3% underlying growth for the full year, meaning a total of £1.09bn; headline dividends are expected to rise 2.5% for the full year, equivalent to a total payout of £1.22bn

AIM dividends rose by 7.4% in the first half of 2022 to £574m, according to the annual AIM Dividend Monitor from Link Group. The pace of growth was held back by lower one-off special dividends. The underlying growth rate, which excludes these one-offs, was a very encouraging 19.8%. New listings from 2021’s busy IPO market, such as FMCG producer Supreme and food wholesaler Kitwave added one percentage point to dividend growth in the first half of 2022.

The strong underlying rate of growth in the first half of 2022 follows a rapid rebound in 2021 from the pandemic. 2021 payouts jumped 39.3% on an underlying basis to £962m, recovering to a level last seen in the 12 months to the end of March 2018. The headline total, which includes 2021’s very large special dividends rose 60.0% to £1.19bn in 2021.

Strong growth from financials, building materials and food & drink

In the first half of 2022 the general financials sector (comprising asset managers, corporate finance advisory firms and stockbrokers among others) saw payouts return to pre-pandemic levels, rising by a fifth on an underlying basis, slightly faster than the overall AIM total.

The largest contribution to growth in H1 came from the building materials sector which has enjoyed the post-pandemic construction boom. For example, cement, aggregates and asphalt producer Breedon, having paid its first ever dividend in the third quarter of 2021, followed with a large final payment in May 2022. The food, drink and tobacco sector also delivered strong growth.

One tenth of AIM’s pre-pandemic dividend payers have yet to restore payouts

AIM companies are much less likely to pay dividends than their larger, more mature counterparts on the main market. Pre-pandemic, one third of AIM’s companies distributed cash to shareholders (compared to 75% on the main market). After bottoming out at 22% in 2020, Link Group expects this to recover to approximately 29% this year – approximately one tenth below the pre-pandemic level . Shoe Zone, for example paid its first dividend in August 2022 since it cancelled payouts at the onset of the pandemic.

Even though just under a third of AIM companies pay a dividend, they nevertheless represent roughly three fifths of AIM’s market capitalisation, indicating that they are generally larger and more mature than non-payers.

Outlook

The second half of 2022 will see a slowdown in the pace of recovery in AIM dividends, as the year-on-year comparisons become less favourable. Link Group expects 8.4% growth on an underlying basis in H2, meaning 13.3% growth for the full year or a total of £1.09bn, excluding special dividends. Special dividends are likely to drop this year from the record 2021 levels, meaning headline growth (which adds specials to underlying) of 2.5% for the full year, equivalent to a total payout of £1.22bn.

Link Group’s forecast does not envisage total payouts surpassing the 2019 peak this year.

Ian Stokes, Managing Director, Corporate Markets UK and Europe said: “AIM companies have really impressed with their ability to bounce back from the pandemic. This is reflected in the strength of the recovery in their dividend payments, which was better than we expected. The easy work is now done, meaning that growth will slow now.

We have less visibility on AIM payouts than we do on the more predictable main market but as we move into 2023, we expect growth to slow further. Corporate margins are currently 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. Underlying dividend growth in the 2-5% range is achievable if the economic squeeze is not too steep, but headline payouts are likely to fall as special dividends are susceptible in downturns.”

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