UK dividend-paying stocks face pressure on their payouts
In the second quarter of 2025, UK companies distributed dividends totalling £35.1 billion, marking a 1.4% decline year-on-year. This modest decrease was influenced by a variety of factors, including the negative impact of mining stocks, the weakening dollar, and economic uncertainty.
Mining stocks had a significant negative impact on dividends during Q2 2025, with payouts falling 9.2%. The weakening dollar reduced the sterling value of payments declared in dollars by £934 million during the same period.
Despite these challenges, the median growth in company payouts was 4.1%, just ahead of inflation but still relatively modest. Sustained economic growth is key to driving UK dividend payouts higher, according to Computershare.
Banks' payouts increased by 8.1% during Q2 2025, contributing one-third of the overall increase. Insurers' dividends rose by 15% during the second quarter, accounting for one-fifth of the increase.
However, the UK economy showed weak performance in mid-2025, including a small contraction of GDP in May and a complex trade environment affected by tariff concerns and delayed trade deals with the US. This economic uncertainty, along with rising taxes and concerns over tariffs related to the Trump administration, has put pressure on UK dividends.
Dividend growth is modest, with FTSE 100 dividends forecast to grow only about 2% compared to 2024. Analysts suggest large dividend increases will be rare, and companies may prefer buybacks over dividend hikes to avoid investor backlash.
The decline was primarily due to a halving of one-off special dividends to £2 billion. A proportionally large 22% of companies reduced their dividends year-on-year.
Despite these challenges, there were some bright spots. Defence contractors and financials accounted for three quarters of the growth in dividends during this period. HSBC tops the list of dividend payers in Q2 2025, followed by Rio Tinto, Shell, Playtech, and British American Tobacco.
Notably, Rolls-Royce, a major contributor to growth, paid its first dividend since the pandemic, with a £508 million payout to shareholders.
Looking ahead, Computershare predicts a 0.6% dip in dividend payouts for the next three months and a flat quarter for the final months of the year. However, after adjusting for exchange rates and one-off special payments, they expect an overall upgrade of 2.8% for full-year dividend growth, delivering regular dividends of £85.1 billion in 2025.
Despite these predictions, a return to historic dividend highs is unlikely before 2026, as the UK economy navigates economic headwinds, tariff uncertainties linked to the US under Trump, rising tax burdens, and currency fluctuations.
- The weakening dollar, economic uncertainty, and tariff concerns have been putting pressure on UK dividends, as seen by the modest growth in dividend payouts throughout 2025.
- While the overall dividend growth in 2025 is expected to be around 2.8%, some sectors like banking and finance have shown stronger performance; for instance, bank payouts increased by 8.1% during Q2 2025.
- Despite a positive trend in certain sectors, the decline in one-off special dividends and the reduction of dividends by 22% of companies suggest that a return to historic high dividend payouts may not occur before 2026, due to factors such as economic headwinds, tariff uncertainties, rising tax burdens, and currency fluctuations.
