Data from Computershare’s Dividend Monitor published today (25 January) revealed 2023 marked the second consecutive year in which banks made the largest contribution to UK dividend growth, with payouts rising by almost a third to £13.8bn.

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Last year, banks also overtook any other sector in terms of dividend payments, an event that has not occurred since before the Global Financial Crisis, Computershare noted.

However, overall UK dividends fell by 3.7% to £90.5bn over 2023, due to a decrease in one-off special dividends, although regular dividends grew by 5.4% to £88.5bn.

Mark Cleland, CEO issuer services UK, Channel Islands, Ireland and Africa at Computershare, said: “The return to prominence by the banks is really remarkable. 13 years of rock-bottom interest rates made it very hard for the sector to make profits, but the need to quell inflation with higher interest rates means the last two years have delivered a dramatic turnaround. Bank investors are reaping the dividends of this reversal and we expect them to see even larger payouts in 2024.”

The oil and utility sectors followed suit, with high energy prices driving a 15.8% increase in dividends from the oil sector, whereas inflation-linked dividend policies drove record dividends from utilities.

The biggest detraction came from the mining sector, the firm found, as commodity prices and profits weakened throughout the year. 

Total dividends paid by the mining sector dropped to £4.5bn – down more than a quarter year-on-year – including special dividends, which are “common in the highly cyclical industry”, Computershare said.

Despite this, the sector still accounted for £1 in every £8 distributed by UK companies in 2023.

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The Dividend Monitor highlighted dividend growth was also slowed by large share buybacks undertaken last year, which impacted the total amount of dividends paid as their aim is to reduce the number of shares in issue.

Computershare argued dividend growth would have been a third faster last year had buybacks not been issued, adding it would have been even faster if “a small proportion of buyback cash had been diverted to dividends”.

The report forecast a slower dividend growth for 2024 at 2%, with regular dividends expected to pay £89.8bn this year.

However, special dividends are expected to recover and “at least make up for the negative impact of a stronger pound” and drive the headline total up 3.7% to £93.9bn.

Cleland added: “There was a lot to be cheerful about in 2023, even if lower one-off payments masked the solid progress UK dividends made. UK plc is generating a lot of cash, which means underlying dividend growth was very encouraging in 2023. 

“Payouts may well remain below their pre-pandemic highs, but significantly larger share buyback programmes have provided an alternative route for channelling surplus capital to shareholders. These programmes also conceal the extent to which dividends are really growing by reducing the number of shares in issue. This is not to say that either buybacks or dividends are superior – they just represent a different way of cutting the cake.”