UK dividends ended strongly in 2023 according to financial services company Computershare, with banks making the most significant contribution to growth during the year.

Computershare’s latest UK Dividend Monitor revealed that despite the headline total for the year falling 3.7% to £90.5bn – owing to lower one-off special dividends – regular dividends which exclude these volatile one-offs rose to £88.5bn, a figure up 5.4% on a constant-currency basis.

During Q4, growth accelerated to an underlying 15.6%. This was largely driven by HSBC, which fully restored quarterly payouts in 2023 for the first time since the pandemic and regained its position as the UK’s largest payer – a spot it last held in 2008.

Computershare’s analysis revealed that HSBC’s impact and growth across the sector meant that, for the second year running, banks made the largest contribution to UK dividend growth, between them raising their payouts by almost a third to £13.8bn in 2023.

Increased banking dividends meant the sector was the biggest dividend-payer for the first time since before the global financial crisis.

CEO issuer services at Computershare, Mark Cleland, described the return to prominence by banks as “remarkable”.

“Thirteen years of rock-bottom interest rates made it very hard for the sector to make profits, but the need to quell inflation with higher interest rates means the last two years have delivered a dramatic turnaround,” Cleland said. “Bank investors are reaping the dividends of this reversal and we expect them to see even larger payouts in 2024.”

Based on the data, Computershare’s report has forecast slower dividend growth of 2.0% on a constant-currency basis for 2024, with dividends delivering regular payouts of £89.8bn.

Higher special dividends are expected to at least to make up for the negative impact of a stronger pound and further drive the headline total up 3.7% year-on-year to £93.9bn.

Cleland added: “There was a lot to be cheerful about in 2023, even if lower one-off payments masked the solid progress UK dividends made. UK plc is generating a lot of cash, which means underlying dividend growth was very encouraging in 2023.

“Payouts may well remain below their pre-pandemic highs, but significantly larger share-buyback programmes have provided an alternative route for channelling surplus capital to shareholders. These programmes also conceal the extent to which dividends are really growing by reducing the number of shares in issue. This is not to say that either buybacks or dividends are superior – they just represent a different way of cutting the cake.”

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