UK company dividends exceeded expectations in Q1 despite a 4.6% decline, according to Computershare’s latest Dividend Monitor report.
The headline fall to £14bn reflected lower one-off special payments. Excluding those, dividends fell 0.2% on an underlying basis.
Cuts from Vodafone, Burberry and Bellway Homes reduced the total, causing a five percentage points drop. However, the median company reported a 3.3% increase in payouts.
Despite the slight fall in Q1, the underlying figure came in 2.7 percentage points higher than expected, with growth coming from the healthcare, food and industrials sectors.
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“Although the headline dividend growth looks disappointing this was mainly due to lower one-off special dividends,” said David Smith, portfolio manager of the Henderson High Income Trust.
“These can be volatile and investors shouldn’t be too concerned given they are more discretionary than ordinary dividends. Certainly given the uncertain economic outlook caused by President Trump’s trade policies we would expect companies to take a more conservative approach and pare back special dividends and share buybacks to preserve cash flows.
“However, it’s important to remember that UK companies are in a healthy position with strong balance sheets while ordinary dividends are well covered by profits, much more so than at the start of the Covid pandemic.
“Hence we believe ordinary dividends will be resilient going forward on an underlying basis and we are encouraged by the 3.3% dividend growth seen from the median company in the UK, which is more in line with our expectations on underlying dividend growth this year.”
Following the better-than-expected Q1, Computershare has upgraded its forecast for Q2, with dividend growth expected to be led by banks and food retailers.
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The report’s forecast for underlying growth during 2025 has also been improved from 1.0% to 1.8%, based upon the delivery of regular dividends of £85.6bn.
“Dividends are typically less likely than company profits to experience short-term fluctuations either during economic turbulence or in boom times, as most companies seek to deliver steady income growth over time for their investors,” Mark Cleland, CEO issuer services United Kingdom, Channel Islands, Ireland and Africa at Computershare, said.
“Nevertheless, any cooling driven by the current upheaval in financial markets and the real global economy is likely to affect profits and this will subsequently knock on to dividend payouts.
“We are unlikely to see much effect on regular dividends in the next couple of quarters, but discretionary special dividends particularly have proven more vulnerable to economic difficulty historically.”
This story was written by our sister title, Portfolio Adviser
