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19 August 2026
Can fund managers really ignore where the companies they invest in are based?6 min readAuthor
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Income may be a key reason to invest, but not all dividends are equal. Knowing what level of income to expect from different industries is a useful way to enhance your research.
We have studied the top 350 companies by value on the UK stock market to see how dividends vary from sector and by company. Multiple industries stand out as decent dividend payers, with many offering yields above 4% on average.
Which sectors stand out?
Generous dividend-paying sectors include those that typically generate stable cash flows. Utilities, tobacco/vaping companies and insurers tick the right boxes.
Sectors with low or no dividends include technology and biotechnology where there is a constant demand on their cash to fund further development work and expansion.
Interestingly, larger technology companies have started to pay dividends in recent years as cash flows have ramped up. While the dividend yields can be low from these companies, the growth rates can be large.
Running the numbers on the UK
We looked at the FTSE 350 index of UK-listed companies to establish which sectors have the highest prospective dividend yields, based on forecast payouts and the latest share price. We excluded sectors where there was only one representative.
At the time of writing, the FTSE 350 in aggregate yielded 3.7% which provides a benchmark for assessing sector-average dividends.
You might think that looks unattractive compared to the 4.9% best-buy rate on a five-year fixed rate cash account. Bear in mind you will get a flat rate of interest on cash savings whereas there is the potential for dividends to go up each year, and for your investment to make a capital gain as well.
Why insurance is a dividend winner
The top yielding sector among the FTSE 350 is non-life insurance (aka property and casualty insurance) with a 9.4% prospective yield on average. Remember this is based on forecast payouts and there is no guarantee you would make that return. Companies can cut or cancel dividends at any time.
Property and casualty insurance spans activities such as motor and home insurance, while also protecting businesses against risks including negligence claims, bodily injury, and property damage.
There are three listed stocks in this sector on the UK market, but we have excluded Beazley pending a takeover. That leaves Admiral and Lancashire, the latter currently among the highest yielding stocks on the UK market at 14%. Note that analysts expect Lancashire to see consecutive cuts to its dividend over the next three years in a row, albeit still decent payouts. For example, it yields 12% based on forecasts for 2028’s dividend.
Property and casualty insurers receive premiums from customers which brings cash into the business. They estimate future claims costs and hold reserves to meet those liabilities. Before an insurer pays out claims, they invest the premium income to generate additional returns. Because they typically do not need to invest much to keep their business ticking over, insurers often return excess capital to shareholders through dividends and share buybacks.
It is similar dynamic as to why life insurance companies can also pay decent dividends, with the average yield among UK-listed sector constituents being 5.9%. Prudential is an outlier on a 2.1% prospective yield. The other names, including Legal & General and Chesnara, are more in the 6% to 7% range.
Why it pays to focus on cash flow
A key metric to study is free cash flow. This is the cash a company has left over after it has invested money to maintain and grow the business. To calculate free cash flow, deduct capital expenditure from operating cash flow.
For example, a company might generate £1 billion of cash from its operations, and then spends £300 million on new factories, equipment, and technology. The £700 million cash left over can fund dividends, share buybacks, pay down borrowings, make acquisitions or simply be kept in reserve for a rainy day.
It is up to the company to decide how it allocates surplus cash, and the split can vary from year to year. While that can complicate matters, certain companies recognise the importance of dividends to shareholders so they have a policy that spells out the proportion of profits or free cash flow they will pay out as dividends.
This can help investors to get a sense of what to expect. It typically means that if profit or free cash flow rises, so does the dividend – and vice versa. You should be able to find the dividend policy in a company’s annual report.
Oil dividends ebb and flow
Investors attracted to oil companies for income need to recognise the sector’s unpredictable earnings. As 2026 has already demonstrated, oil prices can move up and down quickly. In good times, oil companies can make big money once they have sunk the cost of big projects. In leaner times, there is a risk of dividend cuts. The average yield across the UK-listed oil and gas producers is currently 6.5%.
Elsewhere, tobacco and vaping companies sell addictive products. Consumers buy them no matter what is happening with the economy, which means there is an element of predictability to their earnings. The key risks to consider are competition and a regulatory and political clampdown on usage. The two UK stocks in this sector are British American Tobacco and Imperial Brands, and their average prospective dividend yield is 5.8%.
Utilities power up income portfolios
Electricity, water, and gas utilities are more fruitful sources of dividends for investors. The average yield across these business lines on the FTSE 350 is 4.2%, with water companies being the most generous of the bunch. They benefit from predictable demand and regulated revenues, creating stable cash flows that support regular dividend payments.
A key risk to consider is new prime minister Andy Burnham who has spoken in favour of nationalising utilities. He even referenced a desire to bring ‘life’s essentials back under public control’ as part of his first speech outside Number 10.
Who are the other key dividend payers?
Asset managers have a 4.7% dividend yield on average, though the range goes from 1.4% to 7.9%. They are typically capital-light businesses which can mean a high proportion of profit converts into cash.
Banks have a 4.3% average yield which might come as a surprise. Banks have long been associated with rich dividends, yet the yields are now lower than you might have found in the past because the sector has enjoyed share price strength. For example, NatWest is up by a third in share price terms over the past year.
Housebuilders and home improvement retailers score well for dividends, yet the income streams are less dependable than more defensive-style sectors such as tobacco and utilities. That is because they follow economic cycles and in less favourable conditions property-related companies might scale back dividends.
Gold miners look interesting based on near-term dividend expectations, but like property stocks there is a risk of a cut in dividends when precious metal prices weaken.
It’s worth touching on the telecoms sector. While it has historically been a reliable source of income, the sector’s current 3.2% average yield is a reminder that trends can evolve.
BT and Vodafone are the two main telecom stocks in the FTSE 350, and they are undergoing meaningful change. They have prioritised network investment, business restructuring, and debt reduction over dividends. The companies might argue that shareholders will benefit down the line, but for now it means these are not the income champions they once were.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
