High-yielding stocks that could cut your IHT bill

Chris Boxall of Fundamental Asset Management highlights three Aim stocks with solid dividends that could qualify for inheritance tax (IHT) relief

Many cash-generative Aim companies saw their share prices fall dramatically during a torrid 2022. This has highlighted the income potential of Aim, since yields have risen substantially for some well-established firms with long records of dividends .

Another further attraction for many when investing on Aim is the potential to save future inheritance tax (IHT). Those investing in Aim for IHT planning purposes may often be transferring out of other income-generating equities, and so the idea of regular dividend income from a portfolio of Aim shares may be appealing.

Here are three high-yielding Aim stocks that could qualify for this tax relief.

Solid dividends from construction

Alumasc (Aim: ALU), a supplier of sustainable building products, systems and solutions, benefited from the post-lockdown construction boom. Revenues climbed 15% to £89.4m in the year to June 2022, while underlying operating profit was 27% higher at £13.3m, a near-15% margin.

However, the building materials sector has sold off significantly due to worries about recession and interest rates. Alumasc has suffered more than others, with the shares sitting at a discount to its peer group.

The forecast dividend of 10.3p, covered over more than twice by forecast earnings, equates to a yield of 6.4%. Forecast free cash flow of £10.2m in 2023 results in a free cash-flow yield of around 17% at the current £58m market capitalisation.

Attractive recurring earnings

Iomart (Aim: IOM) provides cloud and managed hosting services from its data centres across the UK. It was founded in 1998 by Angus MacSween, who moved from CEO to a non-executive role in 2020 and still holds a 15.45% stake in this £135m market-capitalisation company.

Larger customers tend to have multiyear contracts for complex cloud solutions, which are invoiced and paid monthly, while many smaller customers pay in advance. A significant proportion of revenue is recurring and the combination of multi-year contracts and payment in advance provides strong revenue visibility.

For the last year to March 2022, revenue fell 8% to £103m, while adjusted profit before tax was 12.7% lower at £17.1m (margin 16.6%). The 8% reduction in revenue reflected lower non-recurring revenue and consultancy sales, along with the impact of lower customer renewals experienced in the first half of the year, which then returned to normal levels.

Cash flow is generally excellent, supporting further investment in its data centres and an attractive dividend. A forecast payment of 5.55p per share equates to a yield of 4.5% at the current share price.

A supercharged play on stocks

Fund managers such as Premier Miton (Aim: PMI) are supercharged plays on the stockmarket, rising strongly as markets rise and falling precipitously as stocks (and the manager’s fee income) falls.

Assets under management ended 2022 at £11.1bn, an increase of 5% on the start of the year. Given the challenging market, that looks a pretty good result, with marginal net positive inflows for the final quarter of the year. Revenue for the year to September 2022 fell 3.5% to £81.2m, reflecting turbulent markets, while adjusted pre-tax profit was 15% lower at £24.3m. That’s still an attractive 30% margin.

Free cash flow of £17.1m supported £14.7m of dividends, leaving cash at a healthy £45.8m, equivalent to 23% of the current £202m market capitalisation. The forecast full-year dividend of 9p equates to a yield of 7% at the current share price.