The yield on UK shares is set to hit 5% for the year ahead, while smaller companies will pay out 3.3%. This is the highest level since the depths of the financial crisis.

The average yield over the past 30 years has been 3.5%, so the current level is “exceptionally high” says Link. It added that dividends would have to fall by a quarter for the yield to reach its long-run average, far more than they fell in the financial crisis. It said this is unlikely, even in the event of a disorderly Brexit or recession.

The group reported that 2018 dividends rose 5.1% to a headline record £99.8bn just ahead of its£99.5bn forecast. Underlying dividends (which exclude special ‘one-off’ dividends) were 8.7% higher at £95.9bn. Dividends were given a boost towards the end of the year by a higher pound, but overall exchange rate effects reduced the annual payouts by £1.3bn.

Sectors such as banking and mining were particularly strong, but most major sectors reported an increase in dividends. The major weak spot was, as might be expected, the airline, travel and leisure sector with dividends falling 28%. The utilities sector was also weak.

Larger companies accounted for 86% of the overall UK dividend pot, with companies such as Royal Dutch Shell, BP and HSBC making significant contributions. However, mid-cap companies paid out more special dividends, which meant they saw stronger growth.

For the year ahead, Link expects slower growth, with underlying growth in dividends of 5.3%.

The group said: “Even allowing for a deteriorating global economy, and company- or sector-specific problems in the UK market, a 4.8% yield in our opinion implies an overly pessimistic view on the prospects for dividends. To bring the current level into line with the long-run average, UK dividends would need to fall by more than a quarter, assuming share prices remained unchanged.

“By comparison, the peak-to-trough decline in UK dividends during the financial crisis and subsequent recession was just under 15%. More likely it represents an undervaluation of UK stocks, which have been firmly out of favour with investors for the last two years, owing to the uncertainty over Brexit, as well as the wider global market woes.”