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UK-listed companies cut regular dividend payments last year while increasing purchases of their own shares, the latest sign that a market long targeted by income-hungry investors is shifting towards returning cash to shareholders.
UK corporates paid out £86.5bn in dividends, excluding one-off dividend payments, in 2024, representing a 0.4 per cent dip on the previous year, according to data from financial services group Computershare.
The drop marks only the third year that dividends have declined since the global financial crisis. Including special dividends, payouts rose 2.3 per cent last year.
Share buybacks were “having an impact” by diverting an estimated £42bn-£45bn of cash “that might previously have been paid mostly in dividends”, said Mark Cleland, a senior executive at Computershare.
Although British companies have historically opted for dividends as a way of returning surplus capital to shareholders, the amount of share buybacks has increased in recent years, with many market watchers arguing the market is undervalued.
Last year, UK-listed companies bought back their shares at a faster pace than even firms in the US, where the practice has long been established.
“Given valuations across the UK remain depressed, particularly relative to other developed markets, buying back shares can be a prudent use of capital,” said Anna Farmbrough, a fund manager at Ninety One.
“Provided the company prioritises reinvestment where the returns make sense, and buys its shares at a reasonable valuation, a reduction in share count, compounded over many years, can be a powerful driver of shareholder returns,” she added.
FTSE 100 companies made commitments last year to buy back at least £56.9bn of shares — up from more than £50bn in both of the previous two years, according to investment platform AJ Bell.
London-listed oil major Shell announced a further $3.5bn of share buybacks in October, while HSBC announced a $3bn buyback in July following better than expected profits. British Gas owner Centrica said in December it would extend its total planned repurchases to £1.5bn.
Buybacks tend to be more tax efficient than dividends, while most academic studies have found that, on average, groups that repurchase their shares outperform those that do not.
However, critics say that buybacks simply lead to a short-term surge for earnings per share metrics used to calculate executive pay, and say the money could often be better spent on innovation or investment.
Euan Munro, chief executive of Newton Investment Management, said the practice of buybacks and cancelling shares does “not put real money into any new factories, machinery or M&A targets, it has simply raised the return on capital for the existing fixed capital.”
“As shareholders we obviously appreciate a higher return on capital, and in some circumstances buybacks might be needed to boost this,” he said, although he added that buybacks were less targeted than investment in parts of a business with the highest growth prospects.
Last year’s dip in dividends was driven by a £4.5bn decline in payouts from mining companies, the sector to pay the biggest dividends between 2021 and 2023, according to Computershare, with Glencore cutting its dividend early in the year.
Housebuilders, including Persimmon and Bellway, also took the axe to payouts, following a tough year for the housing market. In contrast, banks, insurers and food retailers increased their dividends.