After a year-on-year decline of 4.6% in the amount of dividends paid out by UK firms in the first quarter of 2025 (to £14 billion), there was another drop in the total payout in the second quarter according to the latest report by global financial services company Computershare.

However, before income investors throw their arms in the air, the headline decline of 1.4% to £35.1 billion masks respectable underlying growth of 6.8% on a constant currency basis and median growth of 4.1% which is an improvement from 3.3% in the first quarter.

Most of the year-on-year drop was due to a halving in one-off special dividends to just £2 billion, while the strength of the pound against the dollar also hit the headline total wiping off close to £1 billion of payouts.

There was, however, an increase in the number of companies reducing their payouts, as only 78% of companies maintained or raised their dividends during the quarter compared with 88% in the first three months of the year.

The largest contributor to growth in the second quarter was aero engine maker Rolls-Royce (RR.), which returned to the dividend list for the first time since the pandemic.

The firm’s turnaround has led to higher margins across its civil, defence and power systems businesses, leading to a substantial increase in free cash flow, and its £508 million payout represented nearly a quarter of the underlying growth in dividends during the quarter.

Banks and insurers also contributed to the rise at an underlying level, with bank payouts rising just over 8% and contributing a third of the increase while insurers raised their payout by 15% thanks to higher premiums and accounted for a fifth of the underlying increase.

As in the first quarter, miners were the big disappointment with payments generally sharply lower, although silver producer Fresnillo (FRES) stood out from the crowd, increasing its regular payout and paying a special dividend.

Due to the dramatic fall in special payments and the strength of sterling, Computershare has trimmed its full-year headline forecast by £1.8 billion and now sees total dividends dipping 1.4% to £88.3 billion.

Computershare’s Mark Cleland, CEO of issuer services for the UK, Channel Islands, Ireland and Africa, commented: ‘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.’ 

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