The best dividend stocks in the UK as payout pressure mounts

Due to economic and exchange rate pressures, dividend payments decreased in the second quarter

During the second quarter, income-hungry investors were hit by a sharp drop in special dividends and bad exchange rates, and research indicates that payouts may continue to decline.

When considering the best funds to invest in, investors often choose dividend stocks because they offer both capital growth and income. However, the companies that own these stocks are not immune to stock market volatility, which can make payouts unpredictable.

According to the most recent Dividend Monitor from share transfer company Computershares, UK companies paid out 351 billion in dividends in the second quarter of 2025, a 11.4 percent decrease on a headline basis from the previous year. It comes after the first quarter saw a 46% decline.

One-time special dividends were cut in half to £2 billion, which caused the headline growth rate to drop by five percentage points.

The sterling value of payments made in dollars was devalued by 934 million in the second quarter alone due to the weakening dollar.

According to the report, a disproportionately high 22% of companies reduced their dividends year over year, and the median growth in company payouts was 40.1 percent, which was slight but just ahead of inflation.

However, the dividend data can be viewed in more positive ways.

Regular dividends were actually 6.8 percent higher at 33.1 billion after deducting special dividends and exchange rate factors, exceeding Computershares' forecast by 230 million.

Of the dividend growth during this time, three quarters came from financials and defense contractors.

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

Companies are generally cautious and don't usually announce large dividend increases; in fact, many have reduced their payouts, and special dividends have sharply decreased this year as well.

The leading industries for dividends in the UK.

The study found that the largest growth contributors were Rolls-Royce and BAE Systems, two aerospace and defense contractors.

This was made possible by Rolls-Royce, which distributed 508 million to shareholders as its first dividend since the pandemic.

According to Computershare, its payout represented less than 25% of the second-quarter underlying dividend growth in the UK.

The growth of dividends in the second quarter was also significantly influenced by banks and insurers.

Bank payouts increased by 8 percent during the quarter, accounting for one-third of the increase.

One fifth of the second quarter increase was made up of a 15 percent increase in dividends, which was the result of insurers' increased profits due to higher premiums.

In the second quarter, dividend payments fell 9 points to 2 percent, with mining stocks having the biggest negative impact.

Rising production costs and declining iron ore prices caused Rio Tinto's profits to decline, which led to a dividend cut in early 2025. Glencore and Anglo American reductions joined it.

Leading dividend stocks in the UK.

Brazilian American Tobacco, Rio Tinto, Shell, Playtech, and HSBC are the top dividend payers for the second quarter.

The top five distributed £12.8 billion to investors over the quarter, accounting for 36% of all dividends disbursed during that time.

What are the prospects for dividends in the UK?

Payouts of dividends depend on businesses turning a healthy profit.

In the UK, that is getting harder to do because of growing taxes and economic uncertainty. Additionally, payouts are being pressured by dollar exchange rates due to Trump tariff concerns.

The headline estimate for 2025 from Computershare has been lowered by 1 point 8 billion.

The headline total dropped 14% year over year to 88.3 billion, which it attributed to exchange-rate factors, additional share buybacks, and an anticipated decline in one-time special dividends.

The comparatively robust first half, however, is sufficient to offset the softness in the second half of the year and result in an overall upgrade to underlying growth when exchange rates and one-time special payments are removed, according to Computershare.

Because of this, the report now predicts an underlying increase of 2 points, instead of 1 point, for the entire year, which will result in regular dividends of 85 points in 2025.

In terms of quarterly forecasts, Computershare anticipates a 0.6 percent decline over the next three months and flat payouts in the year's last few months.

"The headline total is the actual income shareholders receive - and this remains under prolonged pressure," Cleland continued. "The best way to understand how dividends are increasing over time is to look at the underlying growth rate.

"Slow underlying dividend growth, the strong pound, lower special dividends, and the drag from large share buyback activity are all working together to keep pressure on how much companies choose to pay out as dividends, in what is expected to be the third year of stagnation in 2025.

The key to raising UK payouts once more is maintaining economic growth both domestically and internationally, as this will allow businesses to increase the profits that investors desire.