Dividends are down, but UK funds are now beating global rivals

UK dividend payments fell 1.4% in the third quarter of 2025, with cuts from a handful of FTSE 100 companies to blame, according to data from share administrator firm Computershare.  

This marks the third consecutive quarter that the amount of money paid out by UK companies as dividends has fallen. Over the three-month period dividends totalled £24.6 billion.

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The outlook is not expected to improve in the fourth quarter, with Computershare forecasting a weaker outlook, with dividends for 2025 projected to fall 2.3%.

Declines in dividends in the mining sector were a big factor. The report notes that losses at Anglo American (LSE:AAL) and Glencore (LSE:GLEN), as well as falling profits for Rio Tinto (LSE:RIO)driven by lower iron ore prices, meant dividend cuts were inevitable during the third quarter.

Other major cuts included Vodafone (LSE:VOD), while a downturn in the luxury goods market has caused Burberry (LSE:BRBY) to suspend its dividends altogether.

The report also says that housebuilder Berkeley Group (LSE:BKG) opted to divert its cash to share buybacks rather than pay a dividend.

In addition, companies were less generous in paying special dividends, which contributed to the yearly decline versus the third quarter of 2024. Special dividends are made when companies have excess cash and are in a position to pay a one-off, larger-than-normal dividend.

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UK income investors are also being hit by the pound strengthening against the US dollar. More than two-fifths of UK dividends are paid in euros and dollars, and exchanging them for a stronger pound has the effect of reducing dividends for UK investors. 

Mark Cleland, of Computershare, said: “We are seeing some further cuts for Q4, and little prospect of higher payouts from global multinationals like those in the oil sector. 

“The combined effect of widely reported falls in business and consumer confidence, sticky inflation and high market interest rates also make for a challenging economic backdrop for domestically focused companies. 

“In addition, companies are diverting a lot of cash to share buybacks, and this is a significant factor slowing dividend growth – around 160 companies now have active programmes, and some are very sizeable. 

“All this adds up to a projected unusual second consecutive annual decline in dividends for 2025, leaving payouts a long way short of the pre-pandemic highs.”

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The UK market has both a rich dividend heritage and typically an attractive dividend yield to boot, which has typically been around 4% over the past five years.

However, a strong run of form for the UK stock market in 2025 has pushed down yields, with Computershare forecasting a 3.3% prospective yield on UK equities for the next 12 months.

Among the dividend winners during the third quarter wereUK banks. The report notes that NatWest (LSE:NWG) raised its dividend by more than half on the back of strong earnings growth, and Lloyds Banking Group (LSE:LLOY) also made a large increase. 

Overall, eight in 10 UK companies either increased dividends or held them steady year on year. 

UK equity income vs global equity income

Figures from the Investment Association (IA), the fund industry trade body, show that for pretty much every single month since the Brexit vote about 10 years ago, UK funds have been experiencing outflows – meaning more money is being withdrawn than invested.

Global funds have been one of the big beneficiaries, with investors increasingly moving their money to funds targeting shares overseas.

Growth investors have been looking for greater technology exposure, which has clearly paid off given the dominance of the US tech giants, the so-called Magnificent Seven stocks of Microsoft (NASDAQ:MSFT), Amazon.com Inc (NASDAQ:AMZN), Alphabet Inc Class A (NASDAQ:GOOGL), NVIDIA Corp (NASDAQ:NVDA), Apple (NASDAQ:AAPL), Meta Platforms (NASDAQ:META) and Tesla (NASDAQ:TSLA).

While the US doesn’t have as strong a dividend culture as the UK, in terms of overall total returns (capital growth and income) investors in global equity income funds will have benefited from the strong returns across the pond as such funds typically have around 50% or more in US shares. 

For income-seeking investors, adopting a global approach had been paying off, with figures below revealing how global equity income funds have fared against UK equity income funds over one, three and five years to the end of 2024. The returns shown are the sector average.  

Source: FE Analytics. Past performance is not a guide to future performance.

However, a strong run of performance for UK shares in particular the FTSE 100, has closed the performance gap, with UK equity income funds outperforming global equity income funds over one, three and five years (to 21 October 2025).

Source: FE Analytics. Past performance is not a guide to future performance.

One key trend across all three time frames has been the strong performance of value funds, including TM Redwheel UK Equity Income, Schroder Income, Jupiter UK Income and Man Income.

Our recent feature explained that value funds have enjoyed a resurgence due to interest rate rises and the expectation of borrowing remaining higher for longer.

Tracker funds that focus on high-yielding shares, which tend to be value shares, have also been strong performers, including Vanguard FTSE UK Equity Income Index and iShares UK Dividend ETF (LSE:IUKD).

The way in which Vanguard FTSE UK Equity Income invests has been a tough nut for active fund managers to crack, with our recent analysis showing that only a small percentage of active funds have managed to outperform the tracker over short, medium and long time frames.

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Time will tell whether UK equity income funds continue outperforming their global equity income peers.

While UK stocks have had a strong run in 2025, with the FTSE-All Share up 17.5% and the FTSE 100 returning a slightly higher 18.9%, the consensus is that the UK market remains reasonably cheap versus its history and particularly cheap versus the US.

One thing to bear in mind if you do own funds in both sectors is that some global equity income funds have sizeable weightings to the UK. This is not necessarily a problem, and reflects the fact that the fund manager is finding the best opportunities in the UK.

But one thing to bear in mind if you already have a lot of exposure to the UK is that a global equity income fund that avoids the UK, or has only a small amount of exposure, may provide greater diversification. There’s also the risk of doubling up on exposure on certain stocks and sectors.