The UK is one of the most (and in my view, best) places to find dividend shares to buy. London-listed companies have a strong culture of paying large and growing cash rewards. This thanks in part to the kinds of firms Britain is home to.
We’re talking about businesses with cash-rich balance sheets, market-leading positions, and diverse revenue streams. There’s also a large mix of ‘old world’ stocks (like utilities and banks) that have limited growth potential, and which therefore focus on returning cash to shareholders.
The good news for investors is the dividend outlook for UK shares is looking brighter than ever. Want to know why?
Record dividends!
Despite rising uncertainty caused by the Iran war, City analysts are becoming increasingly positive about this year’s dividends. That’s according to latest research from AJ Bell.
Brokers are now expecting total FTSE 100 dividends of £88bn in 2026. That’s an increase of £2bn from predictions made three months ago.
According to AJ Bell investment director Russ Mould, “estimates suggest that 2018’s all-time high FTSE 100 dividend payment of £85.2bn will finally be exceeded in each of this year and next“.
As a result, the FTSE 100 index’s dividend yield is 3.3%, in line with the long-term average of 3% to 4%.
Is there a catch?
The problem is that developments in the Middle East mean profit forecasts for many companies are looking less secure. AJ Bell notes that “any sustained increase in oil and gas prices would be a danger, given the impact on profit margins… and also potentially revenues for many industries if consumers feel obliged to spend less on discretionary items because they are forced to lay out more to cover bills“.
On the plus side, profits estimates “are not showing any strain yet“, Mould says. In fact, some analysts have been hiking their earnings forecasts. But investors should be prepared for cuts to dividend forecasts, a risk that’s growing the longer the conflict lasts without a permanent ceasefire.
In this climate, it’s especially important to find dividend shares with durable business models and robust financial foundations. One such stock I’m considering myself right now is M&G (LSE:MNG).
A FTSE dividend star
On the downside, this FTSE 100 share’s operations are highly cyclical. When economic growth cools and inflation rises, demand for its financial services can weaken sharply. With uncertainty lingering over the Iran conflict, this is a significant danger.
But is this likely to impact the dividends investors receive? I don’t think so. This is thanks chiefly to the firm’s cash-rich balance sheet, which has underpinned dividend growth every year since 2019, when M&G shares listed on the stock market. And today, its Solvency II capital ratio remains vast at 242%, more than double what regulators demand.
The tough trading climate could hit M&G’s share price in the near term. But over a longer horizon, I expect both the company’s share price and dividends to surge as demand for savings, investment, and pension products takes off.
