The results from the latest Computershare Dividend Monitor are better than they look.
- UK dividends fell to £14bn in Q1 2025
- The cuts were attributable to only a handful of companies
- Buybacks hit an astonishing £63.2bn
The UK stock market doesn’t need any more bad news – most investors are already disinclined towards it anyway. With that in mind, the news that dividends fell 4.6% in the first quarter of the year could be seen as a blow. However, the underlying picture is better than it appears.
UK dividends fell to £14bn in Q1 2025, according to the Computershare Dividend Monitor. UK companies paid fewer one-off dividends, but there were also a handful of large cuts. The overall figure was better than forecasts, and the cuts were attributable to only a handful of companies. Vodafone, for example, halved its payout to free up cash for infrastructure investment. Burberry kept its dividends on hold following continued weakness in profits, while the UK housing market weighed on Bellway Homes. These three companies accounted for all the decline.
Total shareholder remuneration in 2024 (buybacks plus dividends) was £153.4bn: up from £148.5bn in 2023. Buybacks hit an astonishing £63.2bn. 82% of companies raised dividends or held them steady year-on-year. Top 100 dividends rose by 2.5% on an underlying basis. In reality, the picture for UK shareholder payouts looks healthy.
Pharmaceutical companies are currently showing the fastest dividend growth in a decade and made the strongest positive contribution in the first quarter of 2025. This part of the market remains firmly unloved by investors in spite of its credentials as a defensive asset.
The real – and perhaps surprising – weak spot was in the mid-cap sector, where dividends shrank 28.3% year on year. However, here too there were unusual factors at work: half of the dividends lost were attributable to companies that were promoted to the FTSE 100. Bellway was the other main detractor.
This dividend report should not be seen as another excuse to avoid the UK market. Computershare is forecasting underlying growth of 1.8% (up from 1.0%), generating £85.6bn in regular dividends for 2025.
However, it may look a little different. Against all odds, it’s been a pretty good run for the FTSE 100, which is up 2.8% for the year to date. That means it has outpaced the S&P 500 by over 11%. However, the FTSE 250 has been lacklustre, down 5.5%. The mid caps may start to look more attractive. Despite the lower dividends, they are now on lower valuations, may be more insulated from the global tariff war, and FTSE 100 yields may be depressed by a weaker Dollar, which is due to knock around £5bn off payouts in the year ahead.
