Why UK dividends are falling this year

The amount of money paid out by UK companies as dividends has fallen for a second consecutive quarter.

Data from share administrator firm Computershare found that in the second quarter (Q2) of the year UK dividends dropped 1.4%, to £35.1 billion.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

The fall was due to one-off “special” dividends halving to £2 billion compared to the same period last year, while a weaker dollar (which means that overseas earnings when converted into pounds are lower) also cut payouts in sterling terms by £934 million.  

This follows a 4.6% drop in total dividends in the first three months of the year, with cuts from Vodafone, Burberry and Bellway hurting the overall payout figure.

• Benstead on Bonds: gilts and the pension time bomb
• Nick Train reveals new share he ‘should have owned years ago’

Computershare now forecasts a 1.4% drop in total dividends for 2025, due to lower one-off payouts and a stronger currency. 

This means that, combined with higher UK share prices, the expected yield on UK equities for the next 12 months is now 3.5%.

However, despite headline falls, underlying dividend growth (which excludes one-off payouts) grew in the last three months.

Computershare reports that regular dividends of £33.1 billion were 6.8% higher, beating Computershare’s forecast by £230 million.

Median dividend growth was more modest at 4.1%, with 22% of companies reducing payouts.

Mark Cleland, of Computershare, said: “In our last edition we forecast a good second quarter for underlying growth, and the outcome was even better than we anticipated owing to pockets of strength in a few sectors like finance and aerospace.

“Overall, companies are cautious, tending not to announce significant increases in their dividends – indeed many have made cuts – and special dividends are in steep decline this year too.”

• FTSE 100 breaks 9,000: which funds have led the rally?
• Terry Smith blames these two factors for underperformance

The largest contributor to second-quarter growth was Rolls-Royce, which paid its first dividend since the pandemic. 

The company’s turnaround is delivering widening margins across civil aerospace, defence and power systems, meaning burgeoning cash flow, according to Computershare.

Rolls-Royce’s £508 million payout was larger than its pre-pandemic levels and accounted for just under a quarter of UK underlying dividend growth in the second quarter. 

Booming defence procurement has also enabled BAE Systems (LSE:BA.) to push dividends higher. 

Banks also made a strong contribution to dividends in Q2, with payouts jumping 8.1% and contributing one-third of the Q2 increase. 

In total, defence contractors and financials accounted for three-quarters of Q2’s growth.