Irish companies could pay significantly higher dividends without incurring undue financial risk, according to research by Merrion Stockbrokers.

The dividend yield of the Irish stockmarket - a measure of the size of dividends relative to the price of shares - is currently around 3 per cent, according to Merrion.

This could easily rise to between 3.6 per to 3.9 per cent and remain affordable, argues the stockbroking firm.

"There are several companies that could afford sizeable increases in their dividend payments - including CRH, Kerry, IAWS, Warner Chilcott, DCC, Kingspan, Fyffes, United Drug, Paddy Power, McInerney and Abbey - and we see little reason why Icon should not initiate dividend payments," according to Mr Rory Gillen, head of research at Merrion Stockbrokers.

He calculates that reducing dividend cover to two times earnings for financial stocks and three times earning for industrials "should strike a reasonable compromise between the opposing objectives of shareholder for increased dividends and management to reinvest for growth."

Higher dividend payments would also have the effect of attracting overseas investors into the Irish market and incentivise Irish fund managers to continue to invest in the market.

"Both CRH's recent 17 per cent and Paddy Power's 44 per cent hike in their respective interim dividends are steps in the right direction, and we expect that shareholders will want to see more Irish companies follow suit," says Merrion.