Dividend growth figures for 2024 may be disappointing, but there are still reasons to be cheerful about the UK.
- FTSE 100 dividends are likely to show almost no growth in 2024 relative to 2023.
- Forecasts are for a 6.5% increase in the aggregate dividend payment in 2025.
- FTSE 100 firms have already unveiled plans for £56.5 billion in share buybacks in 2024.
There hasn’t been a lot to love about the UK market in recent years, but its place as a rich source of dividends has been a key selling point. However, commodity price weakness threatens to dent the UK’s hard won reputation as a source of income.
Data from A J Bell shows that FTSE 100 dividends are likely to show almost no growth in 2024 relative to 2023. The likely total of £78.5bn lies some way short of 2018’s all-time high of £85.2bn. The main source of weakness is the oil producers and miners, which have suffered amid lower oil and metals prices.
However, there are more reasons to be cheerful about dividend prospects in 2025. Forecasts are for a 6.5% increase in the aggregate dividend payment. This is fuelled by rising income for UK companies, which is likely to set new highs of £249bn in the year ahead.
At the same time, FTSE 100 firms have already unveiled plans for £56.5 billion in share buybacks in 2024, after £52 billion in 2023, with £3.3 billion in special dividends on top. At a time when the UK market has seen relentless outflows, buybacks have been an important incremental source of demand. A J Bell calculates that with £10 billion of forecast dividends from the FTSE 250 and £48.3 billion of live or completed takeover offers, the FTSE 350 is offering £196.6 billion in total cash returns, giving it a ‘cash yield’ of 8.3%.
There are, finally, signs that investors may be waking up to the opportunity in the UK market. Calastone data for November shows funds investing in UK equities saw net inflows for the first time since May 2021, breaking a 41-month run of outflows. While the £317m added to UK funds goes only a little way to recapture the £25.3bn that’s been lost, it suggests a potential turning point.
International private equity and corporate buyers are already there, with buoyant merger and acquisition activity. Major UK companies such as DS Smith, Hargreaves Lansdown, Rightmove and Anglo American have seen bids, alongside a wealth of smaller companies.
It should be a better time for UK equities in the year ahead. There has been a tentative recovery in 2024, and this could develop self-sustaining momentum in 2025. Certainly, with dividends, buybacks and takeovers, investors are paid to wait for confidence to return.
