FTSE 100 dividends: where to look for the highest yields on UK stocks

Although FTSE 100 dividend projections have slowed, investors can still find respectable yields in UK stocks, with payouts anticipated to exceed £80 billion by 2025

The 2025 FTSE 100 dividend forecasts are declining once more, making the all-time high of £85.2 billion from 2018 unachievable until at least 2026. The index's 60.8 percent year-to-date gain, which has reduced the dividend yield, along with declining profit projections, also lessens the allure of UK stocks for income, but an abundance of share buybacks is expected to increase investor returns.

As per AJ Bell's most recent dividend monitor for the second quarter of 2025, analysts now anticipate 80.4 billion in dividends from the FTSE 100 in 2025, which is a slight increase of just 2 percent from the 83 billion that was anticipated three months ago.

Considering the index's strong gains so far this year, this places the FTSE 100 on a forward dividend yield of 3 to 5 percent based on analysts' combined projections for 2025. As the US has begun to lag behind on the global stage, the UK's premier index has so far in 2025 produced a 9point 6 percent total return, compared to just 2point 1 percent from the S&P 500.

Dividends from the FTSE 100 are augmented by share buybacks.

Share buybacks provide a nice complement to the FTSE 100's 3 percent dividend yield.

Because buybacks typically give shareholders the chance to sell their stock at a premium price, they can be good news for investors. For investors who choose to keep their money, they can also aid in raising the share price.

Even though 2024's final buyback total of 58.3 billion was barely enough to surpass 2022's total and set a new record high, FTSE 100 companies are already ahead of the game this year.

Even though Next and Bunzl have temporarily halted their plans, they have already announced buybacks totaling 39 billion, which is more than half of last year's total in the first quarter alone.

A total cash return of 119 point 4 billion, or roughly 5 point 25 percent of the FTSE 100's total stock market valuation of 2 point 3 trillion, is obtained by adding the anticipated dividend of 80 point 4 billion to the planned buybacks.

"That cash yield outperforms inflation, the 10-year gilt yield, and the Bank of England base rate, which, on balance, still appears set to go lower before going higher again," stated Russ Mould, investment director at AJ Bell.

To date, no special dividend for 2025 has been announced by any of the 100 companies on the index. Admiral, Associated British Foods, Berkeley Group, Fresnillo, and HSBC all provided these payments last year, totaling £3.7 billion.

"Any merger and acquisition activity, as well as any similar distributions, could further top up the cash pot," Mould stated. Although a predator has not yet circled an FTSE 100 member in 2025, buyers of UK assets have already tabled bids totaling 20 billion this year, following successful approaches totaling 49 billion in 2024. Therefore, takeover agreements may also increase the overall return from the UK equity market.

Which FTSE 100 firms are paying out more dividends?

There is still a fair amount of concentration risk in the UK headline index, even though the FTSE 100 is still appealing to income seekers. Of the projected total dividends for 2025, only 10 companies are expected to pay out 53 percent, or 42 point 4 billion, and the top 20 are expected to contribute 55 point 7 billion, or 69 percent.

Since companies are holding off on paying dividends they might have to reduce later, there doesn't seem to be much chance that this concentration risk will go away anytime soon.

According to Mould, "as far as dividend growth is concerned, analysts appear to believe that significant increases will be a relative rarity in 2025, possibly because buybacks are playing a big role in capital allocation plays. A board and chief executive are likely to draw less flak for a pause in a buyback than they are for a dividend cut."

He added that investors should also consider the role of the pound, which this year devalues the sterling value of dividends declared in those currencies by 28 current FTSE 100 members due to its strength against the euro and especially the dollar.

Sources include the AJ Bell Q2 2025 Dividend Dashboard, Marketscreener, LSEG Datastream, company accounts, and consensus analyst forecasts. dividends that are regular.

In general, a dividend cover ratio of two times is seen favorably for continuous payments since it enables businesses to withstand any economic downturns that might otherwise force them to reduce dividends. Dividend cover is currently at 2.01 times, just above this threshold.

Additionally, compared to the lows of 201516, when there were numerous dividend cuts, this level is much higher.

"As compared to a dozen actual reductions in 2024, analysts appear sufficiently confident in the outlook for 2025, as they anticipate that 89 FTSE 100 members will increase their dividends in the upcoming year, with only five at risk of a cut," Mould said.

However, earnings projections are declining and the increases are by no means significant.

"Even though those buybacks might offer some kind of cash buffer that could be redirected toward supporting dividends, if push ever comes to shove, investors will have to keep an eye on cash flow statements and balance sheets, as well as profit and loss accounts," Mould said.

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