Pressure mounts on UK's highest dividend-yielding shares
Modest Growth Projected for UK Dividends in 2025
UK dividends are expected to grow modestly in 2025, with analysts forecasting a 2% increase on 2024 payouts for FTSE 100 companies, amounting to approximately £80.4 billion in ordinary dividends. This is below earlier estimates of £83 billion and short of the record £85.2 billion reached in 2018.
The decline in dividends is primarily due to a halving of one-off special dividends to £2 billion. Economic context plays a significant role, with the UK economy projected to have moderate growth of around 1.2% in 2025, but with downside risks such as tighter financial conditions, higher precautionary savings by households, persistent global trade uncertainties, and supply chain disruptions.
The strength of the British pound against the euro and US dollar in 2025 has reduced the sterling value of dividends declared in foreign currencies by many FTSE 100 members. This currency effect diminishes overall dividend totals when measured in pounds.
Ordinary dividends are expected to grow slowly, as companies favor share buybacks as a capital allocation tool. Special dividends, which are one-off payments outside regular dividends, have seen a substantial reduction, negatively impacting headline dividend totals even while regular dividends see modest growth.
Computershare, a global leader in financial market and technology solutions, has revised its forecast for 2025, expecting a 1.4% year-on-year decrease in total dividend payouts to £88.3 billion. The company expects a 0.6% decline in dividend payouts for the next three months and for payouts to remain flat in the final months of the year.
In the second quarter of 2025, dividends distributed by UK companies amounted to £35.1 billion, a 1.4% decrease year-on-year. Mining stocks had the largest negative impact on dividends during this period, with payouts falling 9.2%. However, banks and insurers made a significant contribution to second quarter dividend growth, with payouts from banks increasing by 8.1% during the quarter, contributing one third of the overall increase.
Defense contractors and financials accounted for three quarters of the growth in dividends during this period. HSBC topped the list of dividend payouts in the second quarter, while Rolls-Royce, a defense contractor, made the biggest contribution to growth, paying its first dividend since the pandemic, totaling £508 million.
Once special dividends and exchange rate factors are excluded, regular dividends increased by 6.8% to £33.1 billion. Sustained economic growth is key to driving up UK dividend payouts in the future. The overall forward dividend yield on the FTSE 100 is around 3.5%, with total shareholder returns boosted by share buybacks to about 5.25%. The return to dividend records from 2018 is unlikely before 2026 or later.
[1] FTSE 100 dividends to rise by only 2% in 2025, Financial Times, 1st April 2025 [2] UK economy: What's next for growth in 2025?, BBC News, 15th March 2025 [3] UK dividends set for modest growth in 2025, The Guardian, 20th March 2025 [4] Computershare revise 2025 dividend forecast, City A.M., 30th June 2025 [5] Special dividends and currency headwinds to restrain UK dividends in 2025, Bloomberg, 1st May 2025
- The modest growth of 2% in UK dividends for 2025, as projected, may not satiate investors who might be used to the higher dividends of previous years, such as the record £85.2 billion reached in 2018.
- With a focus on share buybacks, investing in UK companies for personal-finance purposes may lead to a higher return on investment (ROI) due to the boost in total shareholder returns, which reach approximately 5.25%, thanks to additional gains from share buybacks.
- Businesses contemplating those UK-based in the finance sector or defense industry might find attractive prospects for investingin 2025, as they contributed significantly to the growth in regular dividends during this period, with HSBC topping dividend payouts and Rolls-Royce leading in growth contributions.
