The London stock market is famed for its huge selection of top-quality dividend shares. And according to latest data, the rate of dividend growth in 2025 actually topped what forecasters were expecting.
On a headline basis, dividends dropped 0.9% to £87.5bn, according to Computershare. However, this was due to exchange rates and lower special dividends, as companies instead prioritised share buybacks. Dividend cuts from telecoms and mining shares also pulled the number lower.
On an underlying basis dividends from UK shares actually rose 3.6% to £84.7bn. This comfortably beat the predicted 2.5% increase.
What’s predicted for 2026?
Income investors like me will cheer those forecast-beating payouts. But will they be breaking out the bubbly? It’s hardly likely, in my humble view.
Manager Mark Cleland of Computershare said that “dividend payouts have still not regained pre-pandemic highs, and the slow dividend growth we’ve seen since 2020 largely continued last year“.
However, he did add that growth rates “did improve as 2025 progressed – and might well have been higher although many companies used significant sums of capital to undertake share buyback programmes“. Share repurchases more than doubled last year, to £63.6bn.
And here’s the kicker: for 2026, Computershare expects headline dividends to rebound 1.5% to £88.8bn. On an underlying basis they’re tipped to increase 2% year on year.
As a result, UK shares carry an average 3.3% dividend yield this year.
Can investors do better?
But again, these numbers aren’t anything to get especially excited about in my opinion. This isn’t any reason to be discouraged, though, as there are many stocks out there with market-beating dividend potential.
Take M&G, where annual dividends have risen consistently since its IPO in 2019. City analysts expect this year’s dividend to rise 3.2%, despite the threat of weak consumer spending on profits. This leaves the financial services provider with a 6.9% dividend yield.
That’s more than double the average for UK dividend shares. It’s the same for Primary Health Properties, whose yield is 7%. Dividends here have risen every year since the mid-1990s, and are expected to rise 2.2% in 2026.
Despite rising costs, its focus on defensive medical properties is tipped to support another year of payout growth.
I just bought this dividend share
I’ve been shopping for dividend stocks myself in recent days, and have added more Aviva (LSE:AV.) to my portfolio.
To me, it’s one of the FTSE 100‘s hottest income shares. During the past 10 years, dividends have risen at a compound annual growth rate of 6.9%. City analysts expect a slightly larger increase (7%) in 2026, resulting in a 6.6% dividend yield.
With a strong balance sheet, Aviva’s in great shape to hit this target even if tough market conditions persist and profits miss their target. Its Solvency II ratio is 177%, and a growing focus on capital-light businesses should strengthen its financial foundations.
Looking longer term, I expect dividends here to keep rising strongly as demographic changes drive rapid market growth. Like M&G and Admiral, I believe Aviva’s one of the best dividend shares to consider right now.
