The 20 most-popular dividend shares among UK fund managers

For investors looking to generate income from their investments, a big trend for several years now has been to go global.

This makes a lot of sense since investing globally provides more diversification, as your money is invested across a variety of countries and sectors.

However, there’s a trade-off, which is that global equity income funds typically have lower dividend yields than UK equity income funds. The former are yielding 3% to 4%, while the latter are yielding 4% to 5.5%.

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There are several reasons why this is the case, but the main ones are that the UK is a high-yielding market with a rich dividend heritage. This allows professional investors to assemble a portfolio aiming to deliver a market-beating yield (the FTSE 100 index is expected to yield 3.7% in 2025), and capital growth.

In addition, global equity income funds tend to have the US as their top country position, with exposure typically ranging from half to two-thirds of the portfolio. The US market has a growth bias, which is reflected in US shares having lower dividend yields than in the UK.

Another plus point for the UK is that valuations are lower than historical averages. This is because the UK has been out of favour among investors for several years.

An important thing to bear in mind, though, is the highly concentrated nature of UK dividends. The biggest companies dominate. For example, in the first quarter of 2025, the top 15 dividend payers accounted for 83% of all income payouts, according to Computershare, while the top five, AstraZeneca (LSE:AZN), Shell (LSE:SHEL), British American Tobacco (LSE:BATS), BP (LSE:BP.) and Unilever (LSE:ULVR), accounted for 54%.

Most fund managers have income heavyweights in their top holdings, as demonstrated by the latest Morningstar data, which reveals the 20 most-popular dividend-paying shares among UK equity income funds. The data, to the end of March 2025, ranks the shares by the sector average percentage weighting. The forecast dividend yield figures were sourced from SharePad on 28 April 2025.  

Of the 20 most-popular dividend shares, banking, healthcare, energy, and tobacco firms dominate. These sectors are viewed as income staples, due to their stable earnings, which usually results in dependable dividends. This gives investors great comfort, particularly in times of economic uncertainty.

For investors who would like greater exposure to mid- and small-cap companies paying dividends, this can be achieved through UK multi-cap income funds, and dedicated UK smaller company income funds.

How the top 20 has changed since last summer

Since we last looked at the most-popular dividend shares held by UK fund managers in June 2024, there have been three new entries.

NatWest Group (LSE:NWG) enters in ninth place, joining Lloyds Banking Group (LSE:LLOY), Barclays (LSE:BARC) and HSBC Holdings (LSE:HSBA).

The other two new entrants are Pearson (LSE:PSON) and SSE (LSE:SSE).

Exiting the table are Rio Tinto (LSE:RIO), 3i Group Ord (LSE:III) and Smiths Group (LSE:SMIN).

Data from Morningstar to end of  March 2025. Forecast yield figures sourced on SharePad on 28 April 2025. Past performance is not a guide to future performance.

The outlook for UK dividends

UK dividend payments fell 4.6% in the first three months of 2025 with cuts from three income heavyweights to blame.

Cuts from Vodafone Group (LSE:VOD), Burberry Group (LSE:BRBY) and Bellway (LSE:BWY) knocked five percentage points off the total, masking better growth elsewhere, according to Computershare’s latest dividend monitor report.

In addition, companies were less generous in paying special dividends, which also contributed to the yearly decline versus the first three months of 2024. Special dividends are made when companies have excess cash and are therefore in a position to pay a one-off dividend. Dividends totalled £14 billion.  

On an underlying basis, which strips out special payments, dividends came in 0.2% lower year-on-year, totalling £13.6 billion.

However, despite the declines, Computershare pointed out that underlying dividend growth was 2.7 percentage points better than expectations. The report also highlights encouraging growth from sectors including healthcare, food and industrials, as well as the leisure sector.

In terms of sectors, pharmaceutical companies were the biggest dividend payers during the first quarter, with both AstraZeneca and GSK (LSE:GSK)showing strong dividend growth on the back of strong sales.

Industrials made the second-strongest contribution, led by Ashtead Group (LSE:AHT)ahead of its planned departure from the London exchange.

easyJet (LSE:EZJ) was also highlighted as delivering the largest contribution to dividend growth in the leisure and travel sector. 

Median, or typical, per share dividend growth was 3.3% in the first quarter. Just over eight in 10 (82%) companies increased their dividends or held them steady year-on-year.

Computershare revised up its forecast for underlying dividend growth in 2025, from 1.0% to 1.8% on a constant currency basis. It now expects dividends to total £85.6 billon.

However, a weaker US dollar versus the UK pound, has reduced its forecast for headline dividend growth, from 0.7% to 0%. The effect of a stronger pound reduces the sterling value of dividends declared in dollars.

Delve into the dividend

There are plenty of high yields among the top 20. With all higher yields, investors need to be careful that they are not taking too much jam today at the expense of jam tomorrow. Lower yields may offer higher dividend growth over the long term.

In addition, as share prices and yields have an inverse relationship, a high yield is often a sign that a stock, for whatever reason, is out of favour. It is therefore crucial to do some digging to check whether the yield on offer is sustainable, including looking at its dividend cover.

As a rule of thumb, a low dividend cover ratio – around one times or lower – suggests dividends are vulnerable, as the company is using most, if not all, its profits to fund the dividend. A figure of two or more is viewed as comfortable because it’s a sign the business is not over-distributing.

Those firms that do hand back more cash than they can afford, risk damaging their longer-term growth prospects through lack of investment in the business.

Check the track record for paying dividends

A company’s track record for paying dividends is worth considering as part of an investor’s wider research. Although a stock that has historically been a generous payer should not be considered a sure bet for dividends continuing to roll in, businesses with patchy records should set alarm bells ringing.

However, bear in mind that a dividend track record does not show the fundamentals of a business, such as balance sheet strength and return on capital.

Moreover, to keep the dividend track record going, there’s the risk that some companies will keep on paying dividends for longer than is sustainable, such as through increasing their debt levels to fund income payments.

Mid-cap and small-cap income stocks

The mid- and small-cap part of the market, which contains more domestically focused stocks, is where investors can potentially find higher dividend growth. However, the risk is that companies may view the dividend as an unnecessary luxury for shareholders in the face of trying to grow their business.

The Quoted Companies team at Octopus Investments make the case for looking beyond the FTSE 100. For diversification, dividends and growth, income investors should consider the less well-trodden path and consider small and mid-cap listed UK businesses, it says. The team pick out Bloomsbury Publishing (LSE:BMY) and James Halstead (LSE:JHD) as two potential “dividend diamonds”. Both have long-term track records of dividend growth, which for James Halstead stretches back 49 years.

The team say: “Both UK-listed stocks have compelling long-term growth dynamics and have been rewarding investors with an attractive and growing dividend stream.”