UK dividends have enjoyed a spectacular start to the year and are expected to continue growing despite the ongoing Middle East conflict. Payouts soared 21.1% to an impressive £16.4 billion in the first three months, according to Computershare*. And they’re predicted to hit £91.6 billion by the end of 2026. This would represent an increase of around 5% over last year’s £87.5 billion figure*.
Here, we take a look at why dividends are increasing, the best-performing sectors, how analysts view the outlook, and which investment funds are worth considering.
Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and tax rules can change. Chelsea does not offer advice and so if you are unsure of anything please contact an expert adviser.
What’s driving dividends?
One-off payouts have had a major impact. Special dividends totalled £3.3 billion, nine times larger than Q1 2025*. Consumer group Reckitt announced it was returning £1.6 billion to investors from the sale of its Essential Home business via a 235p special dividend**. Zegona Communications is handing back £1.2 billion from the sale of its Spanish fibre-network joint ventures, and retailer Next is distributing £441 million after better-than-expected sales*.
A decent dividend performance in a variety of sectors, particularly airlines, leisure and travel, also helped. This included cruiser operator Carnival’s first dividend since the pandemic*. The five biggest dividend payers in the first quarter – AstraZeneca, Shell, Reckitt Benckiser, British American Tobacco and Zegona Communications – handed back £8.2 billion*.
Outlook
So, will the good times continue for investors in UK-listed companies? The answer is yes, according to Computershare, which projects headline dividend payouts of £91.6 billion in 2026*.
The mining sector has been benefiting from rising commodity prices, and the banks have been posting decent dividend increases due to sustained higher interest rates. While the Middle East conflict represents the great unknown, companies will seek to protect their dividends, as cuts are rarely viewed positively by investors. Analysts believe companies will scale back share buybacks before they make any changes to dividends*.
Why invest in dividend payers?
Investing in dividend-paying companies is suitable for anyone seeking a reliable source of income and the potential for long-term capital appreciation. These businesses are often reliable, established industry leaders that generate decent cash flows and have strong balance sheets.
One of the best ways to get exposure to them is through an equity income fund. These hold the shares of many companies offering rising dividends. These portfolios are suitable for a variety of investors, including more conservative investors, anyone wanting some diversification, and those approaching retirement.
Funds to consider
There are plenty of equity income funds that provide access to the biggest dividend payers listed on the UK market. Here are three funds from the Chelsea Selection that are worth considering:
Artemis Income
This is a flexible, high-conviction portfolio of UK stocks, managed by an experienced team that targets rising income and capital gains. It’s been a stalwart of the competitive UK equity income sector for more than two decades and is designed to offer a mix of cash flows from different companies.
The largest holdings include household names such as Tesco, Lloyds Banking Group, NatWest Group, BP and Aviva. Unsurprisingly, just over 84% of companies are large-caps. The most significant sector exposure is to financials (31.3%), with consumer discretionary and consumer staples accounting for 18.5% and 12.5%, respectively***.
Janus Henderson UK Responsible Income
This fund, which is managed by Andrew Jones and David Smith, has a bias towards mid-cap names and aims to provide an income with the potential for capital growth. It also has a well-defined approach to investing responsibly, which involves excluding sectors it won’t own due to ethical constraints.
In a recent update, the managers pointed out that UK consumers, businesses and the banking system were in generally strong financial health: “UK equity valuations remain attractive to us relative to other markets, with domestically exposed stocks in particular trading at a significant valuation discount,” they added.
IFSL Pinnacle Life Cycle Global Equity Income
Our final suggestion isn’t purely UK-focused. It’s actually a global equity income portfolio but has about 10% of its asset allocation focused on the UK. Previously the IFSL Pinnacle Global Equity Income fund, its largest names include oil giant Shell, which is regularly among the largest dividend payers, and 3i Group, a multinational private equity and infrastructure investment firm****.
We see this as a core global equity income fund that focuses on stock-picking. It targets an income at least 20% higher than its benchmark, the MSCI World Net Total Return Index. The fund’s process is built around the idea of a corporate life cycle. The team believes different fundamentals matter depending on which stage a business is in.
