Finding the dividend payers of the future

Professional investor Ken Wotton of the Baronsmead Venture Capital Trusts picks three small-cap stocks that should generate consistent dividend payments.

The wave of Covid-induced dividend cuts is forcing many British investors to re-evaluate their saving strategies. According to stockbroker AJ Bell, total dividend payments for 2020 are on course to be the lowest in six years – £63bn – with cuts estimated at £31.6bn. With £26.5bn – more than 80% – of the cuts coming from FTSE 100 firms, the current crisis has reminded investors of the importance of diversification. Historically, savers have relied on the blue-chip index, but there are plenty of income-generating small caps with more consistent payout policies.

Many investors assume that smaller companies are always more vulnerable to economic difficulties, but we look for companies dominant in niche markets that are relatively insulated from macro dynamics. Investors’ instinctive aversion to smaller companies means they can be neglected and thus offer us an attractive entry point. They are currently trading at a substantial discount to large caps.

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Ken Wotton

Ken Wotton is lead manager of Strategic Equity Capital plc and Managing Director, Public Equity at Gresham House and leads the investment team managing public equity investments. Alongside this, he is manager for WS Gresham House UK Micro Cap Fund, WS Gresham House UK Multi Cap Income Fund and manages AIM listed portfolios on behalf of the Baronsmead VCTs. Ken graduated from Brasenose College, Oxford, before qualifying as a Chartered Accountant with KPMG. He was an equity research analyst with Commerzbank and then Evolution Securities prior to spending the past 12 years as a Fund Manager at Livingbridge and now Gresham House specialising in smaller companies.