UK dividends fell 1.4% in Q2, but lower one-offs and the strong pound masked more encouraging underlying strength

Defence contractors and financials accounted for three quarters of Q2’s growth, according to Computershare’s Dividend Monitor report

• UK dividends fell 1.4% to £35.1bn: one-off special dividends halved, dragging the headline total lower

• A stronger pound against the dollar also hit the headline total, erasing £934m from Q2 headline payouts

• Underlying growth was strong, but regular dividends rose 6.8% on a constant currency basis to £33.1bn

• Median dividend growth was more modest at 4.1%, with 22% of companies reducing payouts

• Defence contractors and financials accounted for three quarters of Q2’s growth

• Headline 2025 forecast trimmed by £1.8bn – mainly owing to lower projected one-offs and continuing sterling strength – now down 1.4% year-on-year to £88.3bn

• 2025 forecast: despite lower headline, a good first half of year means annual underlying growth upgraded to 2.8% (from 2.1%) on a constant-currency basis, bringing regular dividends of £85.1bn

UK companies distributed dividends of £35.1bn during the second quarter of 2025, falling 1.4% on a headline basis year-on-year. This owed mainly to one-off special dividends halving to £2.0bn, and the effect of a weakening dollar, according to Computershare’s quarterly Dividend Monitor.

The global financial company’s Q2 report reveals how the greenback’s fall reduced the sterling value of payments declared in dollars by £934m during that quarter alone.

The report makes clear, however, that the underlying picture – which strips out one-offs and the effect of exchange rate movements – was significantly better than the weak headline total implied.

Regular dividends of £33.1bn were 6.8% higher on a constant-currency basis, beating Computershare’s forecast by £230m.

Mark Cleland, CEO Issuer Services United Kingdom, Channel Islands, Ireland and Africa at Computershare, said: “In our last edition we forecast a good second quarter for underlying growth, and the outcome was even better than we anticipated owing to pockets of strength in a few sectors like finance and aerospace.

“Overall, companies are cautious, tending not to announce significant increases in their dividends – indeed many have made cuts – and special dividends are in steep decline this year too.”

Defence dividends boost

The largest contributor to growth was Rolls-Royce, which paid its first dividend since the pandemic.

The company’s turnaround is delivering widening margins across civil aerospace, defence and power systems, meaning burgeoning cash flow.

Rolls-Royce’s £508m payout was larger than its pre-pandemic levels and accounted for just under a quarter of UK underlying dividend growth in the second quarter.

Booming defence procurement has also enabled BAE Systems to push dividends higher.

Bank payouts

The report reveals how the UK’s banks and insurers also made a significant contribution to Q2 dividend growth, with bank payouts jumping 8.1% and contributing one third of the Q2 increase.

Rising profits among insurers thanks to higher premiums meant a 15.0% increase in their dividends, making up one fifth of the Q2 increase.

Mining

Mining payouts overall were down sharply again, with some exceptions.

For example, in the precious metals segment, where prices have soared, Fresnillo sharply increased its regular payout and paid a special dividend too.

Median dividend growth

Despite the strong underlying growth rate during Q2, median (or typical) growth in company payouts was 4.1%: just ahead of inflation but still relatively modest, and a proportionally large 22% of companies cut their dividends year on year.

Forecast

The report has cut its headline forecast for 2025 by £1.8 bn, mainly owing to the likelihood of an even greater lack of one-off special dividends in H2 as well as exchange-rate factors, pushing the headline total down 1.4% year-on-year to £88.3bn (previously forecast at £90.1bn).

However, after stripping out exchange rates and one-off special payments, the relatively strong first half is enough to compensate for softness in H2 and means an overall upgrade to underlying growth.

As a result, the report now projects an underlying increase of 2.8% (previously 1.8%) for the full year, delivering regular dividends of £85.1bn in 2025.

The report shows how record UK share prices have pushed the yield on UK equities for the next 12 months down to 3.5%.

Cleland added: “The underlying growth rate is the best way to understand how dividends are increasing over time, however the headline total is the actual income shareholders receive – and this remains under prolonged pressure.

“2025 is anticipated to be the third year of stagnation as slow underlying dividend growth, the strong pound, and lower special dividends as well as the drag caused by significant share buyback activity, are all combining to keep pressure on the amount companies are opting to distribute as dividends.

“Sustained economic growth in the UK and around the world is the key to driving UK payouts higher again, because it will enable companies to grow the profits investors want to see.”