Taking Aim

This message has meaning for the Bearbull Income Portfolio, whose present squad may be lopsided - too many dull-but-worthy seniors, who can 'put in a shift' but do no more; too few lively youngsters who can change the course of a game. That's another way of saying the income fund may have too much focus on constituents of the FTSE 350 index - the big fish that waft with the current - and not enough on the smaller fish that can dart purposefully.

Altering that bias should be made easier by the rule change that makes shares quoted on the Alternative Investment Market (Aim) eligible for an Individual Savings Account (Isa). Previously, I shied away from Aim-traded stocks on the logic that income-seekers would want to shield their dividends from income tax and this was not possible while Aim stocks could not be brought within an Isa wrapper. Now that Aim shares are treated like listed shares for Isa purposes, I can bring them into the mix.

Granted, the frequently-youthful nature of Aim shares means they are unlikely to be high yielders. That said, there are about 50 constituents of the FTSE Aim All-Share index with a trailing dividend yield of 3.5 per cent that look capable of at least maintaining their pay-out. And the three in the table are especially interesting.

Juridica (JIL) should be well-known to readers of Investors Chronicle. We have tipped it several times; most recently just last month. The company, which provides the funding for plaintiffs to pursue civil actions, is so idiosyncratic that it should sit well in almost any portfolio. However, it comes with idiosyncratic - and almost existential - risks. When all is said and done, Juridica is just a superior sort of ambulance chaser and the morality of what it does clearly troubles some conservative elements in the US, where it operates. So much so that some states don't allow third-party funding of legal claims. In others, its legality has never been tested. Yet it could be. Perhaps it even should be, given the huge sums the US wastes on litigation. Hence the existential risks - Juridica faces the tiny threat of being wiped out by a change in the law in much the way that online gambler PartyGaming woke one morning in 2006 to find that its US business had been sacrificed to the wrath of America's puritanical lobby. That aside, Juridica looks like a cash machine doling out lumpy dividends, with another 10p due next January (and in the share price until December). Besides, the income fund could live with those risks.

Also risky - though in a more mundane way - are shares in MDM Engineering (MDM). This is a South African mining engineer that designs and builds mining plant. No prizes for guessing its services have been much in demand in recent years; so much so that - helped by acquisitions - its revenues have almost quadrupled in the past four years. More important, in the same period its EPS have gone from 15p to 25p (though MDM reports in US dollars). I can find no City forecasts for 2013-14, though the key question must be to what extent, if any, progress will be affected by slackening demand for the non-ferrous metals - especially gold and copper - in which MDM specialises. That said, MDM has more than £20m of net cash and its bosses say the year has begun well. A trading statement due within the next 10 days should tell us more. Meanwhile, a repeat of last year's dividend produces a tempting yield (see table) and the pay-out was covered twice.

Clearly MDM deserves more work, but intuitively I will give priority to Zytronic (ZYT). That's because its share price has already been hammered by a profits warning in May, yet Zytronic has an impressive track record and a business that should have lots of growth in it. It supplies the touch-sensitive glass that's as ubiquitous as vending machines, gaming terminals, ATM machines and so on. Delayed contracts mean that results for the year ended September will be lousy. True, it is bolstered by a balance sheet with net cash and - for now anyway - the dividend is not threatened. However, the issue is what the underlying business might be worth and Zytronic's long history - its shares have been quoted for 13 years - means there is ample data for a thorough valuation on which I'll report next week. Meanwhile, it's more than likely that Juridica will go into the income portfolio.

The aim is income