Smurfit Kappa packs a dividend punch

“The decision to pay a first-half dividend of €0.8090 means the packaging play Smurfit Kappa becomes the second FTSE 100 firm to return to the dividend list, after Land Securities’ statement that it intends to do so in the autumn, and the eleventh overall,” says Russ Mould, AJ Bell Investment Director. “The total value of the restored payments so far is just £354 million, a tiny figure compared to the £33.5 billion of deferrals, cuts, cancellations and suspensions suffered by income-seekers but at least this offers some hope to investors, especially as the trio of FTSE 100 packaging plays are deceptively important to overall dividend forecasts for the UK’s premier index in 2020.

“Smurfit Kappa cancelled its final dividend payment for 2019 April, which analysts had expected to be €0.8090, but the company has declared exactly the same amount as an interim dividend for the first half of 2020, compared to a distribution at the same stage a year ago of €0.2790.

 
Source: Company accounts

“Shareholders in Smurfit Kappa will be delighted at the return of their income stream, which reflects the relative resilience of the packaging business, helped by the rise and rise of online shopping and also management’s swift actions to manage costs, which resulted in a year-on-year increase in cash flow.

“As investors look ahead to a deluge of first-half earnings figures in the coming few weeks, nine FTSE 100 firms have now declared dividends, two have stated their intention to restore them and 19 have already announced the suspension, cancellation, deferral or reduction of such payments.

Source: Company accounts. Based on calendar years. *Signifies suspended, deferred, cut or cancelled

“Smurfit Kappa’s £176 million interim dividend payment may look relatively small in the grand scheme of things, compared to say Rio Tinto’s £1.5 billion first-half distribution announced today, let alone the consensus forecasts for total FTSE 100 dividend payments in 2020 of £62 billion, but it all helps.

“Just five sectors are expected to generate three-quarters of 2020’s £62 billion in expected payments – consumer staples, oils, financials, miners and health care - not least because just three (industrials, health care and utilities) are expected to grow their pay-outs this year. 

“Two of those will only just manage it, if the analysts are right and the industrials rely heavily on a swift return to the dividend’s prior trajectory at BAE Systems and a trio of packagers, Smurfit Kappa, DS Smith and Mondi. Rarely did so much, beyond internet shopping, rest upon containerboard.”

Source: Sharecast, consensus analysts’ forecasts