The UK stock market is a favourite destination for investors seeking top-quality passive income shares. London’s packed with companies in mature industries that have strong balance sheets. This is a winning formula for consistently large and growing dividends.
But how did British dividend stocks perform in 2024? And what can investors expect in the current year?
Dividend growth to slow?
According to financial services provider Computershare, total dividends rose 2.3% year on year in 2024, to £92.1bn, thanks to a high proportion of special dividends.
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But it wasn’t all good news. Excluding special dividends and currency movements, shareholder payouts dropped 0.4% over the period, to £86.5bn. This reflected dividend cuts from the mining sector.
Encouragingly, the number crunchers at Computershare expect headline dividends to increase again in 2025. But growth is tipped to slow to a crawl as special dividends return to more ‘normal’ levels.
In the current year, analysts think dividends will reach £92.7bn at a headline level, up 0.7% from 2024. This is expected to be driven by a 1% rise in underlying payouts (at constant exchange rates), to £88.2bn.
Median dividend growth is tipped to be in the 4%-4.5% range, roughly matching 2024’s 4.5% increase. Yet Computershare reckons that large payout cuts (like the upcoming one from Vodafone/Three) will weigh on the market total.
Funds or individual stocks?
Investing in a FTSE 100 tracker fund is a popular way for investors to generate dividends. But I think there are better methods of targeting a passive income, given the prospect of weak payout growth in 2025 (and potentially beyond) across the broader market.
For instance, I think buying shares in real estate investment trust (REIT) Tritax Big Box is worth serious consideration. Dividends here are expected to rise by a market-beating 6% this year. This results in a large 5.7% dividend yield.
I expect the warehouse operator to deliver a large passive income despite the threat of interest rate pressures continuing this year. Under REIT rules, it must pay 90% or more of annual rental earnings out in dividends.
I also think Persimmon merits close attention. Total dividends here are also tipped to increase 6% in 2025. And so the dividend yield is a chunky 5.1%.
Encouraged by recent strong housing data, analysts think earnings (and therefore dividends) will rise strongly in 2025. That’s even though Stamp Duty changes in April could impact new-build demand.
Renewable energy
Octopus Renewables Infrastructure Trust (LSE:ORIT) is another top income share to consider. City analysts predict dividend growth for 2025 to be a more modest 3%. However, in my view this is more than offset by the company’s mighty 9.3% dividend yield.
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Investing in renewable energy stocks can be a rough ride when unfavourable weather conditions damage power generation. But Octopus’s diversified model helps reduce this risk. It owns solar, wind, battery storage and hydrogen assets across six European countries (including the UK).
Trading at a 37.9% to its net asset value (NAV) per share, I think it’s worth serious attention from fans of big-paying value shares.
