What to expect from FTSE 100 dividends this year

The FTSE 100 has performed well so far in 2025 and has hit new highs. That share price success might have delivered capital gains for investors but also means the prospective dividend yield is less attractive, currently offering 3.3%.

Dividend yields are calculated by expressing the expected dividend per share as a percentage of the current share price. So, the higher the FTSE 100 goes, the lower the yield (assuming the dividend forecast is unchanged).

Most investors look at total return which factors in both capital gains and dividends, and a 16% overall return in the year to 18 September 2025 should put a smile on their face. However, income seekers are right to seek information specifically around dividend payments as the yields and growth rates can vary massively across the UK blue-chip index.

How dividends are expected to grow this year

There remains a fair degree of concentration risk within the UK’s headline index. Ten companies are expected to pay out 53% of the forecast total for 2025, at £42.2 billion, while the top 20 are expected to chip in 70% of the estimated total.

The top 10 list includes two companies from each of the oil, pharmaceutical, bank and consumer staples sectors.

Investors also need to bear in mind the role of the pound, whose strength against the euro and particularly the dollar this year reduces the value of the dividend in terms of sterling. In total, 30 current members of the FTSE 100 pay out their dividends in euros or dollars, including the index’s latest entrant, Metlen Energy & Metals.

Dividend cover drops below two for first time since pandemic

Dividend cover, which is the ratio of a company’s net profits to the total sum of dividends it pays out, has been on the decline. It reached a reassuring 2.55 times in 2022 but has since declined as companies have increased dividend payments at a faster rate than their profits.

For 2025, cover is – just – dipping below the two-times mark, a figure traditionally seen as one that offers comfort and protection in the event of any unforeseen economic setback.

At 1.96, it still sits way higher than the lows of 2015-16 which did lead to a rash of dividend cuts, but the slide in earnings cover should be monitored.

Thirteen FTSE 100 members cut their dividend in 2015 and a dozen more did so in 2016, figures only exceeded in the past two decades in 2009, at the end of the post-global financial crisis recession and the covid-hit years of 2019 and 2020.

The companies with the top dividend yields

Life insurers Legal & General and Phoenix top the list of highest dividend yields, closely followed by asset management giant M&G, and then two real estate investment trusts.

There have been 140 dividend cuts across the current crop of FTSE 100 members in the past decade, with 73 during the covid-blighted years of 2019 and 2020, but another dozen in 2024.

As such, nothing can be taken for granted and investors need to look at the balance sheet and cash flow when assessing how safe a dividend may be.

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 useless but now monetary policy is returning to something akin to ‘normal’ it may regain some of its former relevance.

Note that Legal & General currently offers a forecast dividend yield of 9.3% or more, or twice the 4.65% 10-year gilt yield that prevails at the time of writing.