Q3 dividends up 89% but remain below 2019 levels

“Having said that, a forward dividend yield of 3.5 per cent on the UK equity market is still attractive especially relative to other regional equity indices, bonds and cash,” he said.

Michael Ulrich, senior fund manager at J O Hambro Capital Management, warned most firms had “significant investment needs” in digitisation, emissions targeting and supply chains. 

“We can’t go back to diverting all the cash flow to dividends and buybacks,” he said, adding dividends were a good discipline for companies, but they needed to invest to get growth. 

“One lesson from the pandemic is that extreme events do happen. If you gear up the balance sheet to return more cash to shareholders you end up asking for it back in an emergency rights issue.”

The numbers for Q2 were also positive, with UK dividends jumping 51 per cent in the three months to June this year, as businesses began to reinstate payments to shareholders.

Dividends jumped to £25.7bn on a headline basis quarter-on-quarter, or to £24.3bn excluding special dividends.