Dividends from UK listed firms rose 8% to £94.3 billion in 2022 on a headline basis, with growth held back by a one third decline in one-off special dividends, according to the latest UK dividend monitor from Link Group.

Underlying dividends, which strip out special dividends, rose 16.5% to £84.8 billion.

Record share buybacks equalled 2% of UK stock market capitalisation in 2022 and “were exerting a noticeable drag on dividends by year-end” said the Link Group report.

“Q4 payouts rose 7% on an underlying basis but the headline total was impacted by lower special dividends and a recovery in the pound,” said the report.

For 2023, the report said underlying dividends are set to rise 1.7% to £86.2 billion but headline payouts will decline 2.8% to £91.7 billion as one-off special dividends are likely to be lower.

Ian Stokes, Managing Director, Corporate Markets UK & Europe at Link Group, said: “The economic skies are decidedly gloomier both in the UK and around the world than this time last year.

“Company margins in most sectors are already under pressure from higher inflation and squeezed household budgets.

“Soaring interest rates are now crimping profits by raising debt-service costs too. This will leave less money for dividends and share buybacks in many sectors.

“We do expect underlying dividends to grow in 2023, however. Even with lower mining payouts, there is good growth coming through from the banks and oil producers and across the wider market, cuts made during the pandemic mean payout ratios are conservative on the whole.

“Companies would also rather reduce share buybacks than cut dividends as cutting dividends is a very negative signal to give to the market.

“With the former so high, there is plenty of wiggle room. Finally, UK plc enters the recession with profits at a comfortable level compared to dividends and this will provide support.”