UK dividends fell to £25.6bn in the third quarter of 2024: down 8.1% year-on-year on a headline basis, according to the latest Dividend Monitor published by global financial services company Computershare.
The change meant Q3 2024 was the lowest third quarter for dividends since 2020, when many companies cut dividends to preserve cash.
The decline reflected steep cuts in the mining sector in particular – as well as a stronger pound; unusually low, one-off special dividends; and large share buy-back programmes.
Such programmes both reduce the number of shares on which companies pay dividends and divert cash that they might otherwise distribute as a dividend.
Regular dividends, which exclude one-off special dividends, were £25.3bn: down 3.5% year-on-year on a constant-currency basis.
At the company level, median (or typical) growth in dividends per share was 4.5%: a little slower than in recent quarters but suggesting that growth across the wider market was better than the top-line numbers implied.
Mark Cleland, CEO Issuer Services United Kingdom, Channel Islands, Ireland and Africa at Computershare, said, “Dividend growth in the third quarter was much more encouraging than the figures suggest, if you look beyond the typically volatile mining sector and take factors like exchange rates and one-off special dividends into account.
“The Bank of England’s decision to keep interest rates higher for longer than other major economies caused the pound to strengthen over the summer, which, in turn, negatively impacted the two fifths of UK dividends that are declared in US dollars.
“Share buybacks mean companies can return surplus cash to shareholders, but fewer shares in issue mean the total cost of providing dividends is lower. This is not necessarily bad news, because buybacks mean additional cash reaching shareholders, albeit in a different way. Buybacks have grown markedly during the last few years, and therefore need to be taken into account when understanding the overall increase in cash distributions by UK companies.”
The Dividend Monitor shows that the biggest impact to dividend payments came from the mining sector, where payouts were £2.6bn lower in Q3 2024 compared with Q3 2023. This ‘mining effect’ knocked a tenth off the Q3 UK-market total and therefore made it difficult for other sectors to compensate. Underlying growth excluding the mining sector would have reached 2.6% on a constant-currency basis during Q3.
With banking dividends broadly flat in Q3 and stalling momentum in the oil sector, there were no major drivers to offset lower mining sector payouts. Elsewhere utilities made the largest negative impact, while the most positive contributions came from the pharmaceutical and industrial sectors.
Mid-cap companies delivered better growth than their top 100 counterparts: up 3.6% on an underlying basis compared to -4.4%. Better growth among mid-caps reflected the relatively strong UK economy in the first half of 2024, to which mid-cap companies are more sensitive.
Future expectations
Computershare’s Dividend Monitor report has reduced its forecast for dividends for the full year this year. The report said that, based on current evidence, share buybacks and the pound combined are expected to reduce dividends by around £3bn in 2024, with Q4 expected to experience a much larger impact than indicators from earlier in the year suggested.
Computershare’s Dividend Monitor now expects an underlying dividend decline of 0.3% (reduced from growth of 0.1%) for the full year meaning regular dividends of £86.8bn. Headline dividends (which include one-offs) are heading for growth of 2.0% for the year to £92.3bn compared to the report’s previous estimate of £93.9bn (an increase of 3.8%).
During the next twelve months, the report expects UK equities to yield 3.7%.
Cleland, added, “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.
“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.”
