UK dividends fall as share buybacks drag on growth outlook

UK companies paid shareholders £24.6bn in dividends in the third quarter, which was down 1.4% year-on-year, with share buybacks slowing the outlook for growth in the final three months of the year.

That’s according to the latest dividend monitor from global financial services company Computershare, which said that “unusually low” one-off special dividends had affected the headline total, but that the underlying picture was also weak.

It found that regular dividends (excluding special payments) fell 0.6% to £24.5bn in the third quarter, though this was slightly better than an anticipated decline of 0.9%.

Dividends are a portion of a company’s post-tax profits divided among shareholders as a reward for investing in their business. Traditional regular dividends are paid on a more consistent schedule, such as quarterly or annually. Special dividends are considered to be one-time payments, if a company has excess cash from particularly strong performance, for example.

Computershare said that a handful of companies making big cuts were responsible for the overall decline, knocking 5.7 percentage points off the third quarter growth rate.

Read more: What are share buybacks?

For example, payouts in the mining sector fell by a quarter as profits among the biggest companies faced further pressure. Computershare said that dividend cuts by telecoms company Vodafone (VOD.L) and luxury fashion brand Burberry (BRBY.L) also had a “significant impact” in the third quarter.

However, Computershare said that 17 out of 21 sectors had higher payouts year-on-year on an underlying basis, and that eight of out 10 companies either increased or held dividends steady year-on-year in Q3.

Aero-engineering firm Rolls-Royce (RR.L) was found to have made the largest contribution to dividend growth in the third quarter, with its first interim payment since before the pandemic.

In the banking sector, NatWest (NWG.L) raised its dividend by more than half on the back of strong earnings growth, while Lloyds (LLOY.L) also made a large increase.

For the fourth quarter, Computershare said that the outlook for dividends had worsened, with a “greater drag from share buybacks, slower median dividend growth and some new cuts in the pipeline”.

For example, it said that oil major Shell (SHEL.L) had spent nearly twice as much on buybacks over the last year than on dividends, pointing out that dividends had “always been larger” before 2022.

Share buybacks have grown in popularity on the UK market, with more companies repurchasing shares as a way of returning money to investors and to boost the value of their stock.

Read more: UK inflation holds unexpectedly at 3.8% in September

In its third quarter results on Wednesday, FTSE 100-listed (^FTSE) bank Barclays (BARC.L) said it planned to move to quarterly buyback announcements, unveiling a repurchasing worth £500m.

Mark Cleland, CEO issuer services United Kingdom, Channel Islands, Ireland and Africa at Computershare, said: “Companies are diverting a lot of cash to share buybacks, and this is a significant factor slowing dividend growth – around 160 companies now have active programmes, and some are very sizeable.”

For the year, Computershare’s report projects regular dividends to total £84.7bn in 2025 and special dividends to total £2.5bn, which would be down from £5.2bn in 2024.

Along with the impact of a stronger pound, the report forecast that total UK dividends would fall 2.3% on a headline basis to £87.2bn this year.

Computershare said that this slightly lower forecast, along with surging share prices, meant the prospective yield on UK stocks for the next 12 months had dipped to 3.3%, down from 3.4% three months earlier.

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