Israeli dividends set to grow 4% in fiscal year 2015

MSCI Israel dividends in FY15 are forecast to reach $2.8bn, up 4%. This represents a solid recovery after a poor FY14, when they fell 18% to $2.7bn, down by more than $600m

Markit is forecasting the aggregate dividend payout of companies in the MSCI Israel index to grow by 4% to $2.8bn. This represents a solid turnaround compared to FY14, which saw an 18% decrease reported in the previous year, dropping from $3.3bn to $2.7bn.

Half of the ten listed companies reduced payments in FY14: four made dividend cuts, while Mizrahi Tefahot Bank suspended payments entirely. The dip was also heavily influenced by the special distribution of Israel Chemicals in FY13 when a one-time dividend of $500m was distributed to optimise the company’s capital structure.

We are forecasting FY15 to be much more positive. We expect only two dividend cuts, six increases and one initiation. This is twice the number observed last year. The key growth driving sector is the Banks sector: We see an increase of 72% as a result of an initiation from Mizrahi Tefahot Bank and a dividend increase of 32.8% from Bank Hapoalim, up by $36m. Chemical companies are expected to push the aggregate sector’s dividend payment up by 21%, with Israel Chemicals paying $ 110m more than in the previous year, up 34%.

The MSCI Israel index is well represented by the banking sector, where three companies out of 10 are banks. The banking sector is slowly recovering and expected to consistently increase dividend payments. While Bank Hapoalim initiated dividend distributions last year (FY13), Mizrahi Tefahot Bank resumed payments this year.

As for Bank Hapoalim, we expect a 30% increase in line with its new work plan for 2015-2017. The bank addresses a 10.2% capital ratio in 2017 plans and a 30% dividend payout from 2015 through 2017, but this is subject to the Central Bank’s approval. As for the last two distributions for fiscal year 2015, it allocated 20% of its quarterly net profit compared to 15% last year. It seems that the bank tends to increase the payout ratio in line with its plans. Fulfilment of one of the major conditions seems to be at a slower pace than was expected by the bank. At the end of Q2, it raised its Tier 1 ratio to a mere 9.42% from 9.29% at the end of fiscal year 2014. Bank Hapoalim appears too confident in achieving its goal of 30% payout, but we are more conservative in our projections and therefore expect the dividends to be distributed at a payout level of 20%.

Mizrahi Tefahot Bank resumed dividend distribution by paying out its first two quarterly dividends in line with its new dividend policy. On December 23rd last year, the board of directors resolved to approve the revised dividend distribution policy for 2015 and 2016. The revised policy calls for dividends to be distributed with respect to quarterly earnings in 2015 and 2016, at a rate of up to 15% of net profit attributable to equity holders.

In the Chemicals sector, we expect Israel Chemicals to raise dividend by 34%, in line with the official guidance to pay 70% of net income in the form of dividends. The company is reducing headcount and concentrating on efficiency initiatives. Producing unique minerals, used primarily in agriculture, food and engineered materials, it recently acquired Allana Potash, showing significant progress in its Chinese phosphates joint venture.

Looking at the biggest paying sectors and their market capitalisation, we can outline the performance of the Telecommunications sector along with chemical companies.

The only representative of this sector is Bezeq Israeli Telecommunications, which despite the anticipated dividend cut of 26% still represents a quarter of the index’s total payout with just a 9% weight in the index. The decline in dividend is the result of analysts’ expectation of a drop in earnings, although it delivered a smaller than expected decrease in quarterly profit owing to its mobile business. A steep decline in its mobile unit’s income was offset by an increase in profit provided by its internet and fixed-line divisions.

Israel Corp as a prominent representative of the Chemicals sector is included in the compound of top 5 biggest payers. There is no official policy on dividend distribution, but we believe that at least a stable dividend will be distributed for fiscal year 2015. The firm delivered very impressive results for the first half of 2015 with $463m of net income, which exceeds the annual income for the entire FY14 ($421m).

Last year Delek Group decided to skip its Q1 dividend payment for fiscal year 2014, which brought the total payment down by 17% compared to the previous year. As for fiscal year 2015, the firm already distributed two quarterly dividends and annulled its prior decision concerning the dividend distribution policy in light of changes in the nature of the company’s operations. It has decided to review the dividends on a case-by-case basis. According to a prior decision from 2005, the company's board of directors determined that the company should strive to distribute approximately 50% of its net annual profit (post tax) each year.

The group is planning to sell its insurance services business, Phoenix Holdings Ltd, in line with its ongoing strategy to focus on its exploration and production assets. The company has strong cash balances and is planning to make a strategic investment in near future. Net income for second quarter of 2015 totalled to ILS 22m, compared with a net loss of ILS 600m in the second quarter of 2014. The contributing factors to the net income were the increased contribution of oil and gas exploration and production operations from sales of gas from the Tamar field. Nevertheless, we are more cautious in our forecast in light of the current situation in commodities market. Therefore we forecast the dividends to be announced at the level of Q2 distribution, which was 20% lower than previous payments.

Calculation methodology

Analyses are done based on dividends that are expected to announce in the upcoming quarter. Dividends are calculated gross. To calculate the aggregate figure, the unadjusted dividend amount and share count one day prior to the ex-dividend date is used, and the exchange rate on the ex-dividend date to convert to EUR is used where required. The calculation does not take into account index free floats. Special dividends are treated like ordinary cash dividends and are included in index calculation purposes. Year on year comparisons are based on the equivalent payment made by a company in the previous year.

All dividend data is provided by Markit. All supplementary data, such as number of shares, is provided by FactSet. All data is correct as of October 23st 2015.

Markit Dividend Forecasting

Markit provides independent and discrete dividend forecasts for over 6,500 global stocks. Markit delivers up-to-date projections on amounts and payment schedules (ex, record and pay dates). Estimates are created by an experienced analyst team conducting bottom-up analysis on individual companies that take into account company fundamentals, direct investor relations guidance, historical patterns, distribution policies, market trends and consensus aggregate estimates.

הנתונים, המידע, הדעות והתחזיות המתפרסמות באתר זה מסופקים כשרות לגולשים. אין לראות בהם המלצה או תחליף לשיקול דעתו העצמאי של הקורא, או הצעה או שיווק השקעות או ייעוץ השקעות ב: קרנות נאמנות, תעודות סל, קופות גמל, קרנות פנסיה, קרנות השתלמות או כל נייר ערך אחר או נדל"ן– בין באופן כללי ובין בהתחשב בנתונים ובצרכים המיוחדים של כל קורא – לרכישה ו/או ביצוע השקעות ו/או פעולות או עסקאות כלשהן. במידע עלולות ליפול טעויות ועשויים לחול בו שינויי שוק ושינויים אחרים. כמו כן עלולות להתגלות סטיות בין התחזיות המובאות בסקירה זו לתוצאות בפועל. לכותב עשוי להיות עניין אישי במאמר זה, לרבות החזקה ו/או ביצוע עסקה עבור עצמו ו/או עבור אחרים בניירות ערך ו/או במוצרים פיננסיים אחרים הנזכרים במסמך זה. הכותב עשוי להימצא בניגוד עניינים. פאנדר אינה מתחייבת להודיע לקוראים בדרך כלשהי על שינויים כאמור, מראש או בדיעבד. פאנדר לא תהיה אחראית בכל צורה שהיא לנזק או הפסד שיגרמו משימוש במאמר/ראיון זה, אם יגרמו, ואינה מתחייבת כי שימוש במידע זה עשוי ליצור רווחים בידי המשתמש.