Considering the potential returns: UK Dividend Stock Investment Opportunities
In the UK, dividend stocks continue to be popular among investors seeking regular income or portfolio liquidity. However, the growth rate of dividends has decelerated recently, with British corporations paying out £14 billion in quarter one of 2025 – a 4.6% decrease compared to the same period in 2024.
Key factors contributing to the decline in total dividends included reduced special dividends and cuts from companies like Vodafone, Burberry, and Bellway Homes. Despite this, the latest figures from stock transfer company Computershare painted a more positive picture than expected, as the underlying dividend growth – which excludes special dividends – fell by only 0.2%. This figure was 2.7 percentage points better than the forecast, indicating a relatively resilient dividend growth.
Computershare also highlighted encouraging growth within sectors such as healthcare, food and beverage, industrials, and leisure. Healthcare companies stood out as some of the largest dividend payers in the first quarter, with pharmaceutical giants AstraZeneca and GlaxoSmithKline increasing their dividends by 6.6% and 7.1% respectively.
The telecoms sector experienced the largest negative contribution, mainly due to Vodafone's decision to halve its dividend payment and Bellway's reduction, which led to a reduction in special dividends and cuts from three companies lowered the total.
Going forward, the impact of trade disruption caused by US president Donald Trump may result in a potential hit on company profits and subsequently influence dividend payouts. Despite this, the UK market could be more sheltered than others due to Trump not targeting it with higher tariffs.
Mark Cleland, chief executive of issuer services at Computershare, stated that while dividends are less likely to experience short-term fluctuations, any cooling driven by the current economic upheaval is likely to impact profits and subsequently affect dividend payouts.
In terms of sector performance, the airlines, leisure, and travel sectors displayed strong growth, with easyJet contributing significantly to this growth. The general financials, property companies, and healthcare and pharmaceuticals sectors also showed good growth.
In cash terms, the healthcare and pharmaceutical sectors were the largest contributors, returning £3.2 billion to shareholders in dividends overall, with total dividends up 7.6% year-on-year. Oil, gas, and energy companies had the second-highest dividend payments, but saw a headline growth rate of -1.9%, mainly due to reduced oil dividends resulting from large share buyback programmes.
Share buybacks have substantially increased in the UK market since the pandemic, with total buybacks reaching £63.2 billion in 2024. FTSE 100 companies have already announced buybacks worth £30.9 billion for 2025, highlighting the significant role these activities play in returning cash to shareholders.
Some of the top dividend-paying companies in cash terms were AstraZeneca, Shell, British American Tobacco, BP, and Unilever, collectively accounting for 54% of the total UK payouts in the first quarter.
In light of the current macroeconomic backdrop and the concentration risk associated with the top 15 dividend-paying companies, experts remain optimistic about the UK market's prospects. They believe that ordinary dividends are expected to be resilient going forward, with a typical growth rate of 3.3% as highlighted in the Computershare report.
Despite a stronger pound acting as a potential headwind, UK equities are expected to yield 3.7% over the next 12 months, making them an attractive option for income-hungry investors. Although gilts offer less volatility, UK equities have the potential for better long-term growth due to their greater opportunity for capital gains and their ability to outpace inflation. Inflation is expected to reach 3.75% later this year.
It is crucial to consider the total cash yield on UK equities, which increases significantly when factoring in buyback activities. FTSE 100 companies are expected to pay out £83 billion in 2025, with total buybacks worth £30.9 billion already announced, resulting in a total "cash yield" of 5.2%, making UK equities a more attractive choice for investors.
The FTSE 100 has significantly outperformed its US counterpart, with a 2.9% increase as of market close on 24 April, while the S&P 500 has declined almost 7% during the same period.
- The decline in total dividends in the UK, as reported by Computershare, can be attributed to reduced special dividends and cuts from companies like Vodafone, Burberry, and Bellway Homes.
- Healthcare companies stood out as some of the largest dividend payers in the first quarter, with pharmaceutical giants AstraZeneca and GlaxoSmithKline increasing their dividends by 6.6% and 7.1% respectively.
- Despite a potential hit on company profits and subsequent dividend payouts due to US trade disruptions, the UK market could be more sheltered than others due to President Trump not targeting it with higher tariffs.
- The general financials, property companies, and healthcare and pharmaceuticals sectors, as well as the leisure and travel sectors, showed good growth in the UK market, making it an attractive option for income-hungry investors, yielding 3.7% over the next 12 months.
