UK dividends fell sharply throughout last quarter as the mining sector cut dividends by £2.6bn and a strong pound pushed down payouts.
Dividends from UK companies totalled £25.6bn in the third quarter, down £2.6bn or 8.1 per cent from the same period last year, according to the latest Dividend Monitor report from Computershare.
The drop caused the company to cut its 2024 full-year forecast for dividends to £92.3bn, bringing overall growth expectations from 3.8 per cent to two per cent compared to last year.
However, dividend growth in the quarter was “much more encouraging than the figures suggest,” argued Mark Cleland, CEO Issuer Services UCIA at Computershare.
Median growth in dividends among companies was actually 4.5 per cent, which was slightly slower than in recent quarters, but showed better growth than implied by the falling overall figure.
Cleland explained that most of the dividend drop had been caused by the “typically volatile mining sector” and one-off circumstances like shifts in exchange rates and lower levels of special dividends.
In addition, share buybacks have increased dramatically in the UK, leaving less cash for companies to pump into special dividend payouts.
“Share buybacks mean companies can return surplus cash to shareholders, but fewer shares in issue mean the total cost of providing dividends is lower,” added Cleland.
However, with banking dividends mostly flat and stalling momentum in the oil and utilities sector, there were no sectors driving growth to offset the lower mining sector payouts.
Looking ahead, Computershare calculated that the strong pound and increasing share buybacks were likely to reduce dividends by about £3bn this year, causing a 0.3 per cent decline in underlying dividends compared to last year.
“The conflict in the Middle East has already begun to drive oil prices higher. The range of possible outcomes from this is wide, but higher prices boost profitability in the oil sector and potentially push up dividends in 2025,” Cleland concluded.
“With the worst of the cuts in the mining sector likely now behind us, broad-based dividend growth from the rest of the market will be easier to see in 2025.”