Despite the market drops in March following conflict in Iran, forecasts for aggregate FTSE 100 dividend payments for 2026 are up slightly over the last three months, at £88 billion compared to £86 billion in December, and 2027 estimates are a fraction higher than at the turn of the year as well. As a result, consensus analysts’ estimates suggest that 2018’s all-time high FTSE 100 dividend payment of £85.2 billion will finally be exceeded in each of this year and next.
Share buybacks could yet supplement this total. The FTSE 100’s members have already declared cash returns worth £29.4 billion via this mechanism for 2026. Add that to the forecast dividend and the total cash return from the FTSE 100 is currently expected to be £117.4 billion in 2026, or 4.4% of the FTSE 100’s total £2.7 trillion stock market valuation. That cash yield beats inflation and the Bank of England base rate but not the 10-year gilt yield, which, at 5% at the time of writing, stands at its highest level since 2008.
That cash yield may not look quite as certain as it did a year ago. As of March 2025, FTSE 100 firms had already outlined buyback plans worth £38.9 billion. HSBC, Intertek, NatWest, Centrica and BP have all flagged pauses in their buybacks, for company-specific reasons, and a worsening macroeconomic outlook could yet prompt other firms to reassess their buyback schemes.
Dividend growth remains concentrated
For income-seekers, the FTSE 100’s yield may be a key part of the UK stock market’s appeal, but investors must be aware of how the forward yield is lower than in the past few years, owing to the strong gains made by the index this decade, right up to the end of February. Quite simply, the index has gone up faster than dividends, so the available dividend yield has contracted.
There also remains a fair degree of concentration risk within the UK’s headline index. Just 10 companies are expected to pay out 52% of the forecast total for 2025, at £45.7 billion, while the top 20 are expected to chip in £60.8 billion, or 69% of the estimated total.
The top 10 list includes three stocks in the Banks sector and two apiece from Oil, Pharmaceutical and Consumer Staples sectors, as well as one from Mining.
Dividend yields vs Gilts
For the second quarter in a row, the life insurers Legal & General and Standard Life (Phoenix Group, as was) offer the highest forecast dividend yields within the FTSE 100.
In fact, the 10 highest dividend yields on offer within the FTSE 100 all come from financial services companies or real estate plays. They represent 9% of the index’s total forecast dividend payment for 2026.
A sustained increase in the 10-year gilt yield could tempt some investors to look toward government bonds and away from equities in their search for reliable income, although they will still need to consider the danger posed by inflation to the real-terms value of gilt coupons and weigh up the potential for capital gains from stock markets, as well as dividends.
A further rule of thumb states that any dividend yield which exceeds the risk-free rate by a factor of two may turn out to be too good to be true. The 10-year gilt yield is a good proxy for the risk-free rate. A dozen years of interest rates at near zero rendered the rule pretty useless but now monetary policy is returning to something akin to ‘normal’ it may regain some of its former relevance.
For the record, not one FTSE 100 stock currently offers a forecast dividend yield of 10% or more, or twice the 5% 10-year gilt yield that prevails at the time of writing, and that is probably no bad thing.
Who are the serial dividend growers?
A really fat dividend yield is not necessarily a good sign, as it can mean that investors are demanding such a juicy return to compensate themselves for what they see as substantial risks at a company. The list of FTSE 100 firms which, on paper, were offering a 10%-plus dividend yield only to then deliver nothing of the sort as investors’ worst fears were realised is not a short one, and over the past decade it includes Centrica, Marks & Spencer, Shell, Imperial Brands, Persimmon and Vodafone.
If anything, history suggests it is dividend growth that is the real secret sauce for a share price, as a growing pay-out will drag it higher over time.
After the delisting of Ashtead, and demotion to the FTSE 250 of Hikma Pharmaceuticals, 16 FTSE 100 members are nurturing an unbroken dividend streak of a decade or more. Coca-Cola HBC is the latest entrant. Severn Trent and LondonMetric Property are also closing in as they can point to nine consecutive increases each.
This grouping has, on average, provided premium capital returns and total returns relative to the FTSE 100 – 11 of the 16 have generated premium capital returns and 10 have done so in terms of total returns (including dividend reinvestment). However, the number of underperformers has increased in the past two to three years, as previously highly valued stocks such as Croda, DCC and the now-demoted Hikma have suffered a de-rating, to show that valuation really does matter in the end.
Moreover, only half of the 16 could be found in the FTSE 100 a decade ago. Any investor looking for the next generation of dividend growth winners may therefore need to dig into the FTSE 250 (or below).
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
