UK dividends fall as companies battle challenging economic backdrop
UK dividends tumbled in the third quarter of the financial year, as large companies made significant cuts to their shareholder payouts.
According to the latest dividend monitor from financial services firm Computershare, London-listed firms paid their shareholders £24.6bn in the third quarter, through one off and regular payments.
This was a 1.4 per cent year-on-year decrease from the £25.6bn reported last year.
Mark Cleland, chief executive officer of Issuer Services in the UK at Computershare credited this drop to the challenging economic conditions the UK is facing.
He said: “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.”
Cuts and hikes
A handful of big companies across some of the FTSE’s most notable sectors, were credited as the leading cause for the drop.
In particular, the mining sector saw dividends fall by a quarter, with Rio Tinto, Glencore and Anglo American cutting payouts by £711m.
Mining sector payouts are down £1.2bn compared to 2024, and are £10bn lower than the peak year of 2022.
Telecommunications giant Vodafone also suffered a cut, halving its dividend to preserve capital for investments, and UK high street staple Burberry also made a substantial dent to its payout as it suffered from a downturn in the luxury goods market.
However, not all leading businesses slashed dividends, with Rolls Royce making its first interim payment since the pandemic, while Natwest hiked dividends by 1pp off the back of strong earnings growth, while Lloyds also increased their payout.
Q4 outlook
The forecast for the final quarter has also worsened, with advertising firm WPP confirming a 50 per cent dividend cut after profits fell.
Dividend growth has also slowed while share buybacks from large firms have grown including oil titan Shell, which has spent almost twice as much on buybacks than dividends over the past year.
However, some FTSE 100 firms have cancelled their share buyback programmes, including Coca-Cola HBC, which this week said it would instead use the cash to fund a £2bn acquisition.
Computershare now predicts 2025 dividends to total £87.2bn, a 2.3 per cent decrease from the £92.1bn handed to shareholders last year.
Cleland said: “We are seeing some further cuts for Q4, and little prospect of higher payouts from global multinationals like those in the oil sector.
“In addition, companies are diverting a lot of cash to share buybacks, and this is a significant factor slowing dividend growth.
“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.”