Income investors typically look at large cap stocks for dividend opportunities, often believing their size and scale equate to solid earnings which can support regular cash pay-outs to shareholders. What’s often overlooked is that smaller companies can also be a hunting ground for dividends.
We’ve scanned the market for the highest yielding stocks on the AIM market, looking for companies where generous dividends are forecast for at least two years in a row.
There are plenty of AIM stocks forecast to pay considerably more than the FTSE 100’s average 3.8% yield. However, one must recognise the greater risks of investing in the AIM market as many are less mature businesses and do not have diverse revenue streams.
As with any stock on the market, dividends are not guaranteed payments and so investors must not assume they will always get the predicted level of income when buying the shares.
WHICH ARE THE TOP YIELDING AIM STOCKS?
The table shows the top yielding AIM stocks, based on information from SharePad and guidance from some of the companies for future dividend payments. The yield is based on the share price on 22 December 2022 and forecasts for the next set of financial results to be reported.
It has a 19.6% compound annual growth rate in net income based on data between 2016 and forecasts to 2023 from Stockopedia. Over the same period, free cash flow per share has a compound annual growth rate of 20.1%. Somero has a history of regularly paying special dividends on top of ordinary ones.
Like many asset managers, Polar Capital (POLR:AIM) has seen a big decline in its share price this year as investors worry about outflows from its funds and a reduction in assets under management caused by negative market movements. It has suffered from several downgrades to earnings estimates, yet the company appears to be confident enough to keep paying generous dividends - hence the 9.5% prospective yield on offer.
Housebuilder Watkin Jones (WJG:AIM) has seen its share price fall by 65% this year amid concerns about a slowdown in the property market and a big profit warning in October. No reference was made to the dividend outlook in the trading update two months ago, but investors must consider this to be a higher risk stock from an income perspective.
Progressive Equity Research forecasts that Watkin Jones will cut its dividend from 8.2p in the year to September 2021 to 7.8p for the financial year just ended and 7.9p for 2023. That still leaves implies an 8.5% prospective yield. The consensus forecast from all analyst estimates is slightly higher according to SharePad data, equating to an 8.8% yield.
