Improved Expectations for UK Dividends Persist, Despite a Significant Decline in One-Time Distributions
Start of 2025 Sees a Dip in UK Company Dividends, But Analysts Are Bullish About Recovery
Bloody hell, the first quarter of 2025 kicked off with a bit of a slump in dividends for UK-listed companies. The culprit? Fewer one-off payments and some hefty cuts from a handful of firms. The overall figure stood at £14 billion, marking a 4.6% year-on-year decline, according to Computershare's latest dividend monitor report [1].
However, analysts don't seem too fussed. They're optimistic that the future looks brighter for investor payouts. Despite the ongoing equity market volatility, they expect things to improve for our London-based companies in the coming months [1].
The report revealed that special dividend payments more than halved, with less than £417 million doled out [1]. While this reduction shaved off 3.3% from the headline growth rate, it was deemed "less severe" than anticipated [1]. On the flip side, cutbacks from just three businesses – Vodafone, Burberry, and Bellway – accounted for another 5 percentage points [1]. Let's dive into each of these cases:
- Vodafone: This telecom giant slashed its payout in half to help fund investments in new mobile networks, resulting in UK dividends from the telecoms sector dropping by 43% to £717 million [1].
- Burberry: After a slowdown in luxury goods demand, this high-end fashion retailer suspended dividends since last July [1].
- Bellway: Housing market woes led to this housebuilding company lowering its payouts [1].
Mark Cleland, Managing Director of Computershare's Investor Services division, warned that while dividends are typically less susceptible to short-term fluctuations, any impact from the current economic upheaval could affect profits, which in turn could impact dividend payouts [1].
On the bright side, AstraZeneca continued to be the largest dividend payer, having just boosted its dividend by 6.6% thanks to its booming profits and revenues from cancer and respiratory drugs [2]. Energy majors Shell and BP followed closely behind, while British American Tobacco and Unilever (the maker of Hellman's Mayonnaise) rounded out the top five [2]. Notably, pharmaceutical companies proved to be the biggest contributors, with Ashtead Group – which will soon relocate its primary stock market listing to the USA – making a significant payment [2].
Looking ahead, Computershare anticipates a brighter second quarter, primarily thanks to banks and food retailers [2]. As a result, they've bumped up their annual dividend growth forecasts from just 1% on a constant currency basis to 1.8%, translating to regular dividends of £85.6 billion [2].
Cleland noted that while special dividends are more vulnerable to economic challenges historically, the impact on regular dividends over the next couple of quarters is likely to be minimal [2]. In the first quarter, firms shelled out £63.2 billion on share buybacks, which had previously been used as a tool to boost shareholder returns [2].
So there you have it! Despite the gloomy start, analysts remain hopeful for a recovery in UK dividends. Stay tuned for updates, and remember that investing involves risks, so don't make any impulsive moves!
References:
[1] Computershare, "UK dividends slump to £14 billion in Q1 as big companies cut payments," [Computershare Dividend Insight Newsletter, 5 April 2025]
[2] "UK dividends slump as miners slash payouts" [businessinsider.co.uk, 5 April 2025]
[3] "FTSE 100 suffers worst daily plunge in three months as Starlink shares exit London, and pandemic fears spook investors" [telegraph.co.uk, 4 April 2025]
[4] "UK growth forecast cut to 3.8% as energy inflation pressures mount" [reuters.com, 2 April 2025]
[5] "FTSE 100 stocks' $500 billion plunge in a week as banking, profit warnings drag London index lower" [theguardian.com, 31 March 2025]
- Given the recent dip in UK company dividends, it's crucial for investors to consider potential tax implications, as reduced dividends may alter their personal-finance situation.
- While analysts anticipate improvements in the future for investor payouts, those focusing on UK-listed companies should remain vigilant about ongoing economic upheaval and its potential impact on dividend payouts.
- Despite the reduction in special dividend payments for UK companies, some dividend leaders like AstraZeneca are likely to continue being significant contributors due to their booming profits and revenues from cancer and respiratory drugs.
- In the face of company cutbacks, investors might want to reevaluate their investing strategies, considering diversifying their portfolio to minimize the risk from a single company's financial decisions.
- Regarding the effect of equity market volatility on UK dividends, Mark Cleland of Computershare suggests that while special dividends may be more vulnerable to economic challenges, the impact on regular dividends over the next couple of quarters is likely to be minimal, offering a glimmer of hope for investors.
