Kate Marshall, acting head of fund research, Hargreaves Lansdown:
“The UK has long been a go-to destination for income investors. Cash-generative businesses, a strong dividend culture and a bias towards mature sectors have made it one of the highest-yielding stock markets globally. But the narrative has evolved. The UK market is built differently to many of its global peers. While the US is dominated by fast-growing techs that reinvest earnings, the UK has greater exposure to sectors like banks, oil & gas, pharmaceuticals, utilities and consumer staples. These are typically more mature industries with steadier cashflows, and more likely to return profits to shareholders as dividends. That’s helped keep UK dividend yields higher. As at the end of May 2026, the UK’s FTSE All-Share index yields 3.12%, comfortably ahead of the 1.0% for the US market and 1.58% for the broader global stock market.* For income investors, that’s a solid starting point.
Why yields have fallen
While the UK remains one of the highest-yielding markets, yields aren’t quite as elevated as they’ve been in the past. But this isn’t because of a collapse in dividend payments. Instead, shares have risen in some of the UK market’s traditional income-generating sectors. As prices rise, yields naturally fall, even if companies are paying the same, or more, in dividends. There’s also been a shift in how companies approach payouts. Following the pandemic, many UK firms reset their dividends to more sustainable levels. That’s left payout ratios (the proportion of earnings paid out as dividends) lower than before and suggests UK dividends are better supported and potentially more resilient than they were in the past – though as ever, no dividend is guaranteed.
Dividends are only part of the picture
Income investors focusing purely on yield might be missing part of the story. UK companies have increasingly used share buybacks alongside dividends to return cash to shareholders. This trend has picked up as companies take advantage of what they see as undervalued share prices. Buybacks reduce the number of shares in issue, which can boost earnings per share and, over time, support dividend growth. Energy giant Shell is an example. It has been rebuilding its dividend after pandemic-era cuts, while simultaneously running a large buyback programme. Together, this has delivered meaningful total returns to investors – even if the total dividend remains lower today.
For investors, it’s a reminder that income isn’t just about the yield you see today, but the total cash being returned over time.
A valuation opportunity?
Another factor supporting the case for UK income is valuation. UK shares have traded at a discount to global peers for many years. That discount widened following the Brexit vote and has yet to fully close, even though many UK-listed companies generate a significant proportion of their revenues overseas.
For investors, this creates an interesting combination – relatively high income alongside relatively low valuations. That provides scope for capital growth if sentiment towards the UK improves. There’s already some evidence of buyers looking to take advantage of the value on offer in the UK, including among international investors. Ongoing takeover activity suggests overseas investors recognise opportunities that public markets might be overlooking.
Don’t ignore concentration risk
While the UK offers attractive income, it’s not without its risks. One of the main ones is concentration. A large proportion of UK dividends comes from a relatively small number of companies, with over half of total payments generated by the top 15 names.** That means income levels could be vulnerable if a small number of big payers cut or suspend their dividends. For investors, diversification is key. Spreading exposure across sectors, while holding UK funds alongside other global funds or asset classes such as bonds can help smooth income over time.
Fund ideas for UK income
Artemis Income takes a flexible approach to UK equity income, investing across the market in companies the managers believe can deliver a combination of income and capital growth. The fund isn’t constrained to the highest-yielding stocks. Instead, the managers invest in cash generative businesses with the potential to grow their earnings, and as a result the dividend they can pay to shareholders, for years to come. We view this as a more conventional UK equity income fund that could work well alongside other asset classes in an income focused portfolio. The fund currently yields 3.56%.
Janus Henderson UK Responsible Income combines a focus on income and growth with a commitment to responsible investing. The focus is on large and medium-sized companies, although the manager has the flexibility to invest in higher-risk smaller companies too. The fund invests in UK companies that meet strict environmental, social and governance (ESG) criteria. Like many UK income funds, it benefits from exposure to some of the market’s traditional dividend-paying sectors. But the ESG lens means it may look quite different from the broader market, potentially offering diversification benefits. For example, the manager avoids companies with significant involvement in areas some investors consider unethical, such as alcohol, armaments, gambling and tobacco. The fund currently yields 3.80%.”
*Source: MorningStar to 31/05/2026
**Source: Computershare Q4 2025 UK Dividend Monitor
May 2021 to May 2022 | May 2022 to May 2023 | May 2023 to May 2024 | May 2024 to May 2025 | May 2025 to May 2026 | |
|---|---|---|---|---|---|
Artemis Income | 5.98 | 1.17 | 17.13 | 17.25 | 11.59 |
Janus Henderson UK Responsible Income | 2.47 | 6.36 | 11.84 | 9.24 | 11.00 |
IA UK Equity Income | 5.62 | –1.76 | 15.23 | 7.72 | 15.20 |
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