UK dividends drop as companies look to preserve cash

Total UK dividends dropped in the third quarter of the year (July to September) to £25.6 billion, down 8.1% year-on-year.  

Regular dividends, which exclude one-off special dividends, were £25.3 billion, down 3.5% on a constant-currency basis.  

This is according to the latest Dividend Monitor published by financial services company Computershare. 

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It found that UK Plc is predicted to yield 3.7% during the next 12 months, down from previous forecast of 4%. This is a result of lower payouts as companies seek to preserve cash, and higher share prices, which compress dividend yields.  

Equities and gilts now yield a similar amount, at around 4%, but cash-like products, such as money market funds, yield about 5% currently as returns are closely linked to the Bank of England interest rate. Money market returns will fall, however, as interest rates decline. 

Computershare notes that while yields on equities and bonds are similar, history shows that dividends grow over time, reflecting the long-term growth in company profits and the advantages of owning shares over bonds. 

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Moreover, the data firm notes that the total shareholder yield, which includes the value of share buybacks, is closer to 6% because buybacks have become an increasingly important component of the cash returned to shareholders in recent years.  

The main detractor for dividends in the third quarter was the mining sector, which cut payouts by £2.6 billion, or by half roughly compared with the same period last  year. 

Mining company payouts in 2024 will fall by almost three-fifths since their peak in 2022, but they will still be the third-largest paying sector this year, according to the data firm.  

With banking dividends broadly flat, and the oil sector also seeing payouts decline, a decline in payouts overall was inevitable.  

Among other sectors, utilities made the largest negative impact, while the most positive contributions came from the pharmaceutical and industrials sectors. 

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Mid-cap companies were a bright spot, posting better underlying growth (+3.6%) than the top 100 firms, reflecting mid caps’ greater sensitivity to a resilient UK economy, as well as lower exposure to exchange rate movements. 

The largest dividend payers in Q3 2024 were Rio Tinto Registered Shares (LSE:RIO), Shell (LSE:SHEL), National Grid (LSE:NG.), HSBC Holdings (LSE:HSBA) and British American Tobacco (LSE:BATS), paying out £7.5 billion between them.  

Computershare now expects headline dividends of £92.3 billion for 2024, up 2% year-on-year, down from its previous forecast of a 3.8% annual increase.  

Clive Beagles, manager of the J O Hambro UK Equity Income fund, says that the fall in dividends in Q3 was expected, but growth will accelerate next year. 

He said: “There were a number of companies who shifted their ‘ex’ date from late September to early October, for example Phoenix Group Holdings (LSE:PHNX). This magnified the fall in Q3 vs last year. Conversely, it will boost the growth rate of Q4 2024 vs the Q4 2023 figure.   

“In 2025, we expect a marked acceleration in dividend growth towards the fund’s long-term average, of around 9% a year. ”