UK dividends, buybacks, and why investors’ fears may be misplaced

Buybacks are rising but are dividends at risk? Our latest Q&A explains why income investors have reasons to stay confident.

JHI Investment Trusts

11 Dec 2025
3 minute read

Key takeaways:

Even though companies are buying back more shares and special, one-off dividends have become less common, regular dividend payments have stayed resilient.
When companies buy back their own shares, each remaining share can become more valuable, which can help support future dividend growth and share prices.
UK companies are now paying out a smaller portion of profits as dividends, making these payments more stable and sustainable, even in uncertain times.

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Why is this useful to know?
If you invest for income, headlines about UK companies spending billions on share buybacks instead of dividends might sound worrying. After all, dividends are the cash payments you rely on. But the reality is more reassuring, and understanding what buybacks, payout ratios, and special dividends mean can help you see why.

What’s a share buyback?
A share buyback happens when a company uses its cash to buy its own shares from the market. This reduces the number of shares in circulation, which can boost the share price and make each remaining share more valuable. While buybacks don’t put cash in your pocket immediately like dividends do, they can support long-term growth and even future dividend increases.

What’s a payout ratio?
Imagine a company earns £100 in profit. If it pays £60 in dividends, the payout ratio is 60%. Before the pandemic, UK companies paid out about 62% of profits. Today, it’s closer to 47% – a smaller slice of a bigger pie because profits have grown. Lower payout ratios mean companies keep more cash for tough times, making dividends more sustainable.

What’s a special dividend?
Special dividends are one-off bonus payments, like an extra treat when times are good. UK companies used to pay these regularly, but they’ve fallen sharply since 2019. That’s part of why overall dividend totals look lower, even though regular dividends remain strong.

The fear: Are dividends disappearing?
Between 2019 and 2024, UK-listed companies spent about £33bn more on share buybacks. At first glance, that looks like money diverted away from dividends. But dig deeper and the picture changes.

What changed during the pandemic?
In 2020, many companies cut dividends. This wasn’t only about survival; it was a chance to reset payout levels to something more sustainable.

The payout ratio (the percentage of profits paid out as dividends) fell from 62% in 2019 to 47% in 2024. At the same time, total market earnings rose from £155bn to £192bn.

That means companies are paying out a smaller slice of a bigger pie, leaving more cash on their balance sheets. The extra cash – around £29bn from lower payout ratios plus £4bn from fewer special dividends – almost perfectly explains the £33bn increase in buybacks. In other words, buybacks aren’t replacing dividends; they’re funded by a deliberate shift to healthier dividend policies.

Why this matters for you
A payout ratio of 47% is below the long-term average, giving companies more flexibility to keep paying dividends even in tougher times. Stronger balance sheets mean less risk of sudden cuts. And buybacks can actually help income investors over time. With fewer shares in circulation, the same dividend pool is shared among fewer shareholders – so dividends per share can grow without companies stretching themselves.

The bottom line
Special dividends (those one-off bonus payments) may stay subdued, and economic uncertainty always poses risks. But the UK’s dividend culture isn’t disappearing. It’s evolving. Companies are prioritising resilience, and buybacks are a part of that strategy. For long-term investors, that could mean steadier dividends and stronger share prices ahead.

Glossary

Balance sheet

A financial statement that summarises a company’s assets, liabilities, and shareholders’ equity at a particular point in time. Each segment gives investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. It is called a balance sheet because of the accounting equation: assets = liabilities + shareholders’ equity.

Dividend

A variable discretionary payment made by a company to its shareholders.

Income investing

Income investing is an investment strategy that is centred on building an investment portfolio specifically structured to generate regular income.

Payout ratio

A measure of the proportion of earnings at a company that are paid out as dividends to shareholders, usually calculated as a percentage.

Share buybacks

Where a company buys back their own shares from the market, thereby reducing the number of shares in circulation, with a consequent increase in the value of each remaining share. It increases the stake that existing shareholders have in the company, including the amount due from any future dividend payments. It typically signals the company’s optimism about the future and a possible undervaluation of the company’s equity.

Share price

The price to purchase (or sell) one share in a company, not including fees or taxes.
For investment trusts: The closing mid-market share price at month end.

Special dividends

Special dividends are one-off bonus payments.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

Before investing in an investment trust referred to in this article, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

There is no guarantee that past trends will continue, or forecasts will be realised.

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Glossary

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