UK dividends hit record quarterly high, but 2024 outlook cut

UK dividends hit a new record in the second quarter of 2024, boosted by the banking sector and one-off special dividends.

Dividends rose 11.2% on a headline basis in the second quarter to a record £36.7 billion. However, underlying growth (which strips out special dividends) was just 1%. Yet this still represented a quarterly record dividend haul of £32.5 billion.

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

However, Computershare, an asset administration company that produces the quarterly Dividend Monitor report, has downgraded the income outlook for 2024 due to a sharp slowdown in payouts from mining companies.

Computershare now forecasts underlying growth this year at just 0.1%, down from growth of 1.5% three months ago. It forecasts total regular dividends of £88.2 billion.

The report also reduced its headline growth forecast (which includes special dividends) to £93.9 billion (down from £94.5 billion). This would represent year-on-year dividend growth of  3.8%, but lower than the previous 4.5% forecast.

Computershare said that if mining companies were excluded, it would be expecting double-digit underlying growth this year.

Turning back to the second quarter, banks made the strongest contribution to growth and are on track for record payouts in 2024. The largest contributor was HSBC (LSE:HSBA), which paid a special dividend after selling its Canadian arm. 

The net interest margin – the difference between what a bank receives in interest from lending money compared to what it pays on its deposits – has increased. In turn, this means banks have more cash, which has led to a boost in dividend payments.

The report says that banks distributed £1.1 billion more in regular dividends compared to the second quarter last year.

• Sign up to our free newsletter for share, fund and trust ideas, and the latest news and analysis
• UK bank results season: a preview and top stock picks
• Mining sector dividend forecasts: summer 2024

The healthcare sector made the second-largest contribution to growth, with dividends up 25% year-on-year. The report said that this is primarily a result of strong profit performance at Haleon (LSE:HLN) and GSK (LSE:GSK).

Dividend growth was broad, with 16 out of 21 industry sectors seeing higher payouts.

The weakest sector was housebuilding (-37.4%), followed by mining (-33.5%). The mining sector is not historically a reliable dividend payer. Mining company dividends fluctuate depending on the performance of the iron ore price. In addition, some firms have strict dividend payout ratios. As a result, if they make less money, the dividends are cut.

Mark Cleland, of Computershare, said: “Higher profits mean most sectors are paying more in dividends and spending a lot of cash on share buybacks, although this might not be obvious given that the gravitational pull of mining companies on UK dividends is hard to escape.

“Our figures for Q2 show that most sectors are delivering growth, and we expect that to continue in the second half of the year.” 

The data tracks the payouts from 900 UK companies. Over the next year, UK equities are set to yield 4.0%, the same percentage as the past two quarters.