Irish company dividends likely to hold up post-Brexit as profit growth declines

Weaker sterling against euro may make UK dividend payers more attractive

Irish corporate dividends are likely to withstand a slowdown in Irish profit growth on the back of the Brexit vote, according to analysts.

A weakening of sterling against the euro since the UK referendum has also made high-yielding London-based stocks more attractive. However, many defensive, export-oriented FTSE 100 companies have rallied strongly in the past four weeks.

Brexit is "definitely a different type of shock" to the global financial crisis, which hit corporate earnings and shareholder payouts globally, said David Holohan, chief investment officer with Merrion Capital in Dublin.

“Irish management teams are likely to take a more long-term view and, given the relatively strong balance sheets for Irish plcs, would be expected to maintain at current levels,” he said.


Scrapped payouts

The overall Irish market has been a relatively unattractive one for investors hunting for income in recent years, as banking stocks, typically good dividend payers, have scrapped payouts since 2008, said

Aidan Donnelly

, a senior equities analyst with Davy’s private clients division.

The prospects of Bank of Ireland, which reports interim figures today, achieving its aim of returning to dividends next year has dwindled, according to analysts, as more than 40 per cent of its loans are in the UK and Brexit has fuelled a 60 per cent widening of its pension deficit in the first six months of the year to €1.2 billion.

Also, the Government has delayed a return of AIB to the main market from this year to at least the first half of next year.

Still, an 8 per cent slump in the Iseq since the UK vote – with Merrion, for one, cutting its overall Irish earnings growth forecast to 7 per cent from 11 per cent – has boosted the dividend yields of most companies. The search for yield has become even more pressing for investors globally in an era of ultra-low interest rates and as more than €12 trillion of Government and company bonds carry negative yields.


Cider maker C&C, which has almost doubled its dividend per share in the past five years, is yielding 3.6 per cent.

While C&C said earlier this month that sterling weakness would hit its earnings as half its profits are made in the UK, its chief financial officer, Kenny Neison, said this shouldn't affect the group's plans to continue to increase shareholder payments.

“We’re well covered and we’re paying out of good, free cash flow,” he said.

Smurfit Kappa

Shares in cardboard box-maker Smurfit Kappa, which has trebled its payout since 2012, are carrying a 3.5 per cent yield. This week, group chief executive Tony Smurfit said the company was happy with its "progressiv dividend policy".

Other high-yielding stocks include agri-services company Origin Enterprises, offering 4 per cent; Irish Residential Properties Reit, at 3.4 per cent; and financial services firm IFG Holdings, at 2.7 per cent – all rated buy at Merrion.

"The collapse of sterling against the euro has also made sterling assets look more interesting for Irish investors, especially when you look at companies that have a lot of international business," said Joe Gill, a director of corporate broking at Goodbody Stockbrokers. "GlaxoSmithKline, Vodafone and Diageo have all done well since Brexit."

Last week, London-based Capital Asset Services’ latest UK dividend monitor study said a slump in sterling would boost payouts across UK companies by £4.3 billion (€5.1 billion).

Top dividend payers

The UK’s top 10 dividend payers, led by

Royal Dutch Shell

, lender




, are expected to make up more than half of all dividends in the London market this year.

However, Mr Donnelly said investors needed to do their homework before snapping up high-yielding shares – making sure that the companies’ profit outlook was strong enough to sustain payments. There were even dangers with companies forecast by analysts to continue remunerating investors.

“A lot of high-dividend paying sectors . . . have had a very strong run of late and are actually looking quite expensive,” he said. “There are few things more dangerous than an overpriced defensive stock, because no amount of dividend income can compensate for a large fall-back in the share price.”

He noted that traditional big-dividend players such as major oil companies, pharmaceutical groups, telecoms and utility stocks have all had “massive runs” in the past couple of weeks.

"The problem right now is that to get decent dividend income you have to go into sectors nobody likes, like banks and insurers," he said. "Allianz and Zurich offer good yields, as do some of the bigger international banks like HSBC – because these are sectors nobody likes at the moment."

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times