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FTSE 100 Dividends in 2025: A Shift Towards Buybacks
The FTSE 100 is forecasting dividend payouts of around £80.4 billion to £88.3 billion for 2025, representing a slight decline or stagnation compared to previous years. This trend is attributed to a growing preference for share buybacks over dividend increases.
The average dividend yield for the FTSE 100 stands at roughly 3.2%, with some stocks offering yields as high as 5% or more. Notable dividend increases are expected from companies like GSK, Unilever, Admiral Group, Fresnillo, Lloyds, Rolls Royce, BAE Systems, and Natwest Group, with the latter having the biggest forecast increase of £532 million.
However, share buybacks have become a major method of returning cash to investors, offsetting the lack of dividend growth by enhancing total shareholder return through share price boosts. Companies such as HSBC, SRP, and Fresnillo have announced substantial buyback programs, totalling £39 billion in buybacks already declared in 2025.
Investors will need to keep a close eye on cash flow statements, balance sheets, and profit and loss accounts to ensure the sustainability of dividends. The average dividend cover in the FTSE 100 is currently 1.28 times, which is viewed as positive for ongoing payouts.
The pound's strength against the euro and the dollar reduces the sterling value of dividends declared by 28 current members of the FTSE 100. Despite this, the cash yield from the FTSE 100 beats inflation, the 10-year gilt yield, and the Bank of England base rate.
Analysts expect 89 FTSE 100 members to raise their dividend in the coming year, with just five seen at risk of a cut. Earnings estimates are falling for the FTSE 100 companies, which could potentially impact future dividend payouts.
In summary, while dividend income remains important, buybacks are now a significant component of the cash returns FTSE 100 investors can expect in 2025. This trend indicates a concentration risk within the FTSE 100, as companies are holding back on paying out dividends they may have to cut later. Investors are advised to monitor their investments closely and consider the long-term sustainability of the companies they invest in.
[1] Source: FTSE Russell [2] Source: Financial Times [3] Source: Money Observer [4] Source: Reuters [5] Source: Investor's Chronicle
- Some investors might choose to invest in property or other assets as an alternative to relying solely on dividends, given the growing preference for share buybacks among FTSE 100 companies.
- In the context of the shift towards buybacks, finance experts suggest that investors should pay close attention to a company's financial statements, such as cash flow statements and balance sheets, to evaluate the long-term sustainability of a company's share buyback program and its potential impact on total shareholder return.
