Octopus Investments has pinpointed some small and mid-cap stocks it considers to be ‘dividend diamonds’ in a new report.
The newly conceived Octopus Investments Dividend Barometer examines what the firm sees as the lesser-known dividend credentials of smaller companies.
Octopus said the UK equity income conversation usually focuses on a narrow set of large companies, with heavy concentration. The report noted that just ten big stocks generate 55% of total payouts in the FTSE 100.
"While many of the better known traditional equity income stocks focus on the FTSE 100, there are over 550 dividend paying companies across the entire UK equity market," the report stated. "Many of these outside the FTSE 100 have attractive levels of earnings growth, that can underpin sustainable and growing dividends."
"Performance in the FTSE 100 may have improved recently and is expected to deliver a dividend yield for the current year of just over 3.9%, but other indices are increasingly on its tail. The FTSE 250, ex-investment trusts, is expected to pay out a healthy 3.4%, and the FTSE Small Cap, ex-investment trusts, is positioned to do even better with an attractive 3.8% expected."
The report also named a couple of the ‘dividend diamonds' in the market right now; small or mid-cap companies that have significant income potential.
Intermediate Capital is an alternative asset manager listed in the FTSE 250. The group has seen growth in its ordinary dividend for 12 consecutive years, with 2022 reporting a 36% increase compared to 2021. For this financial year, the business is expected to generate a five-year dividend compound annual growth rate of almost 22%.
The second Octopus pick was RWS. The FTSE AIM listed translation services specialist has grown to be the number two in its market globally.
It paid a record £41.9m in 2022 and the business is now expected to be one of the largest cash dividend payers on AIM, Octopus noted. This will mark 17 years of unbroken dividend progression, a five-year dividend compound annual growth rate of 10.8%, and an expected dividend yield for the year to September 2023 of 3.5%.
The quoted funds team at Octopus Investments also revealed a forecast in the report. They said the FTSE AIM is the only index where payouts are expected to recover to pre-Covid levels in 2023.
FTSE AIM total dividend payouts have increased 64%, from around £770m to almost £1.3bnexpected for 2023. This compares to FTSE 100 total dividend payouts increasing by only 17.3%, Octopus noted.
Alex Sebastian is a freelance journalist
