UK dividends in the third quarter fell to their lowest in four years, mainly due to cuts in the mining sector and many companies' preference for share buybacks.
Dividends totalled £25.60 billion in the three months to end-September, down 8.1% year-on-year on a headline basis according to Computershare's latest analysis.
Regular dividends, which exclude one-off special payouts, came to £25.30 billion, down 3.5%, with a stronger pound weighing on payouts from many international groups.
Dividend payments from FTSE 100 companies fell 4.4%, while those from mid-cap companies rose 3.6%.
The mining sector accounted for the largest reduction in payouts, with a £2.60 billion drop, with growth from other sectors, including pharmaceuticals and industrials, not enough to offset the impact of the downswing in the mining cycle.
For the whole of 2024, Computershare revised its full-year forecast to headline dividends of £92.30 billion, which would represent a 2.0% year-on-year increase, down from the prior prediction of £93.9 billion.
Regular dividends are forecast to reach £86.80 billion, representing a slight 0.3% decline on an underlying basis.
"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," said Computershare's Mark Cleland.
"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."
He said while many companies seem to prefer share buybacks, which is one way for companies to return surplus cash to shareholders by buying up their own shares, "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," said Cleland.
The fall in the past quarter was magnified by some companies shifting their ex-dividend date from late September to early October, such as insurance giant Phoenix Group, noted Clive Beagles, senior fund manager at JO Hambro's UK Equity Income Fund, who said the corollary is that it will boost the growth rate of the fourth quarter.
He said a "flattish" outturn for dividend growth had been anticipated for 2024, but, for 2025, he expects a "marked acceleration" in dividend growth towards the long-term average his fund has seen of nearer 9% per year.