Higher interest rates push banks to pay out more dividends than any other sector

• Companies paid out £90.5bn in 2023 driven by the banking sector 
• Payouts increased by almost a third to £13.8bn according to Computershare 
• Energy and utilities continued to drive dividend growth but mining flagged 

Dividend payouts by UK-listed companies rose to £90million last year, with banks leading the charge thanks to higher interest rates.

Headline figures show dividends dipped 3.7 per cent to £90.5billion in 2023, but this was in large part because of lower one-off special dividends.

Underlying growth was significantly better – regular dividends rose 5.4 per cent to £88.5million, according to Computershare’s Dividend Monitor, with much of the growth coming in the final quarter.

Dividends grew 15.6 per cent in the fourth quarter largely driven by HSBC, which restored quarterly payouts for the first time since the pandemic, and the wider banking sector.

It marks the first time banks have been the largest-paying sector since 2007, raising their payouts by almost a third to £13.8billion in 2023.

Computershare’s Mark Cleland said: ‘The return to prominence by the banks is really remarkable.

‘Thirteen 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.’

Higher energy prices drove a 15.8 per cent increase in dividends from oil companies, while payouts by utilities companies hit a record high thanks to inflation-linked policies.

Mining majors made the largest negative impact with a fall of £4.5billion, or 28.4 per cent, across the year because of weakened commodity prices. But the sector still accounted for £1 in every £8 distributed by UK companies last year.

Computershare also highlighted the impact of a number of large buyback programmes on payouts.

Companies who feel the current share price does not reflect their true value tend to engage in buybacks to boost their earnings per share.

In the fourth quarter, housebuilder Vistry cancelled its fourth quarter dividend and used the cash to repurchase shares.

Natwest, Aviva, HSBC, BP, Glencore and Centrica are other big names engaged in share buyback programmes.

In the absence of share buybacks, Computershare calculate sthat underlying dividend growth would have been 7.2 per cent last year.

Cleland said: ‘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.’

Computershare anticipates the biggest dividend paying sectors – banking and oil – are likely to grow more slowly in 2024, while mining is likely to decline further.

It forecasts UK underlying dividend growth to slow to 2 per cent this year, meaning regular dividends of £89.9billion and a headline total of £93.billion.