The top UK dividend stocks as payouts come under pressure

A steep decline in special dividends and poor exchange rates hit income-hungry investors during the second quarter and payouts could fall further, research suggests.

Dividend stocks are popular among investors when looking at the top funds to invest in as they provide income and capital growth, but the companies behind them are not immune from stock market uncertainty, which can make payouts hard to predict.

Share transfer company Computershare’s latest Dividend Monitor shows UK companies distributed dividends of £35.1 billion during the second quarter of 2025, falling 1.4% on a headline basis year-on-year. It follows a 4.6% drop in the first quarter.

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The decline was attributed to one-off special dividends halving to £2 billion, knocking five percentage points off the headline growth rate.

The weakening dollar also had an impact, reducing the sterling value of payments declared in dollars by £934 million during the second quarter alone.

The median 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, according to the report.

There are more positive ways to look at the dividend data though.

Once you strip out the special dividends and exchange rate factors, regular dividends were actually 6.8% higher at £33.1 billion, beating Computershare’s forecast by £230m.

Defence contractors and financials accounted for three quarters of the growth in dividends during this period.

“The outcome was even better than we anticipated owing to pockets of strength in a few sectors like finance and aerospace,” said Mark Cleland, chief executive of issuer services at Computershare.

“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.”

The top sectors for UK dividends

Aerospace and defence contractors Rolls-Royce and BAE Systems made the biggest contribution to growth, according to the research.

This was helped by Rolls-Royce, which paid its first dividend since the pandemic, with a £508 million payout to shareholders.

Its payout accounted for just under a quarter of UK underlying dividend growth in the second quarter, Computershare said.

Banks and insurers also made a significant contribution to second quarter dividend growth.

Payouts from banks jumped 8.1% during the quarter, contributing one third of the increase.

Rising profits among insurers, thanks to higher premiums, meant a 15% increase in their dividends, making up one fifth of the second quarter increase.

Mining stocks had the largest negative impact on dividends during the second quarter, where payouts fell 9.2%.

Rio Tinto cut its dividend in early 2025 as a direct response to weaker profits driven by falling iron ore prices and rising production costs. It was joined by reductions from Anglo American and Glencore.

Top UK dividend stocks

HSBC tops the table for dividend payouts in the second quarter, followed by Rio Tinto, Shell, Playtech and British American Tobacco.

The top five paid out £12.8 billion to investors during the quarter, 36% of all dividends paid during the period.

What is the outlook for UK dividends?

Dividend payouts are reliant on companies making a decent profit.

That is becoming more of a challenge in the UK amid rising taxes and economic uncertainty, while dollar exchange rates amid Trump tariff concerns are also putting pressure on payouts.

Computershare has cut its headline forecast for 2025 by £1.8 billion.

It blamed an expected drop in one-off special dividends, more share buybacks and exchange-rate factors, pushing the headline total down 1.4% year-on-year to £88.3 billion.

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

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

Broken down by quarter, Computershare expects a 0.6% dip in the next three months and for payouts to be flat in the final months of the year.

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.”