Dividend Barometer Report
Barometer (n.) Showing how a particular situation is developing, or how people’s opinions on a particular matter are changing.
The Dividend Barometer is a report, compiled by the Quoted Funds team at Octopus Investments, which champions the lesser-known dividend credentials of small and mid-cap income stocks.
Headlines
Earnings growth and valuations are disconnected, presenting a significant opportunity for investors in UK growth companies.
Dividend cover has increased for every index except the FTSE 100, which has decreased.
In the UK, dividend growth remains stronger away from FTSE 100, in mid and small cap stocks.
AIM dividend payouts are now significantly higher than levels seen during Covid-19, growing by almost 75% since 2015.
“What our Dividend Barometer shows us is that smaller companies can offer investors a sustained and growing dividend stream, as well as a once in a cycle opportunity for capital growth recovery. What’s more, the smaller company indices offer a better forecast earnings profile to Nasdaq and yet are currently trading at half the price to earnings multiple. We hope that our Barometer highlights why investors should look more closely at small and midcap income stocks, as the market recovers from where we are today.”
– Chris McVey
Senior Fund Manager – Quoted Smaller Companies
Dividend Diamonds
Here are two current stocks held in our portfolios, that we believe have shone over the last six months.
H&T
The UK’s leading pawnbroker.
Sector: Finance
Index: FTSE AIM
H&T has delivered fantastic growth in dividend per share over the recent year, from 4.8p for the year ended December 2013, to over 20p expected for the year ended December 2023. It has maintained the company’s stated progressive dividend policy with dividend cover more than 2x.
XPS Pensions Group
A leading pensions consulting and administration business.
Sector: Business Services
Index: FTSE Small Cap Index
For the year to March 2023, the group delivered a dividend of 8.4p, a 17% increase on a year earlier, providing investors with a historic dividend yield of 5.3%. Whilst the stock price has rerated over recent months, it remains attractively valued at 14.3x to March 2024.
These companies are for illustrative purposes only and are not an investment recommendation.
Discrete 1-year performance % return to August 2023
| 2023 | 2022 | 2021 | 2020 | 2019 | |
|---|---|---|---|---|---|
| FTSE 100 TR | 6.2 | 6.2 | 23.6 | -14.3 | 1.5 |
| FTSE 250 TR GBP | 0.9 | -18.9 | 38.2 | -6.2 | -3.4 |
| FTSE Small Cap TR | -0.8 | -14.1 | 52.9 | -2.3 | -4.8 |
| FTSE AIM TR | -14.4 | -30.9 | 35.3 | 11.8 | -20.0 |
| H&T Group | -12.7 | 55.8 | 7.9 | -24.9 | 19.0 |
| XPS Pension Group | 33.9 | -2.8 | 8.3 | 19.3 | -37.5 |
Past performance is not a reliable indicator of future results. Source: Lipper to 31/08/2023. Returns are based on published dealing prices, single price mid to mid with net income reinvested, net of fees, in sterling.
Risks to bear in mind
The value of an investment can fall or rise and you may not get back the full amount you invest. Smaller company shares are also likely to fall and rise in value more than shares in larger, more established companies listed on the main market of the London Stock Exchange. They may also be harder to sell.
Our investments are not suitable for everyone. We do not offer investment or tax advice. Personal opinions may change and should not be seen as advice or a recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No. 03942880. October 2023. CAM013435.