Why Canadian investors are looking at UK equity markets again

UK equities offer Canadian investors discounted valuations, record dividend payouts and a weaker pound

FOR YEARS, CANADIAN portfolios have leaned heavily towards domestic stocks and the US. That’s starting to change. UK equities are trading at steep discounts, dividends are hitting record levels, and the pound remains soft against the Canadian dollar. Here’s what’s pulling investor attention back to London.

A Valuation Gap That’s Hard To Ignore

The FTSE 100 trades on a trailing price-to-earnings ratio of around 15, compared to somewhere in the mid-20s for the S&P 500. That’s a discount of about 40%, and it holds up even after adjusting for sector differences like the heavy tech weighting in American indices.

For Canadian investors used to paying full price for US growth stocks, this matters. Close to 80% of the revenue generated by FTSE 100 companies comes from outside the UK, so you’re buying globally diversified earnings at a fraction of the cost.

The FTSE 100 cleared 10,000 points earlier this year and pushed close to 11,000 in February, but even after that run, the gap with the US hasn’t closed. International investors have started to notice. British domestic investors, ironically, have been slower to act, having pulled money out of their own market for years.

Record Dividends With Room To Grow

2026 is shaping up to be the UK’s best dividend year on record. FTSE 100 companies are forecast to pay out £88.8 billion in ordinary dividends, finally surpassing the previous high of £85.2 billion set in 2018. Add in share buybacks, and total cash returns to shareholders should reach around £124.8 billion.

The headline forward yield on the FTSE 100 stands at roughly 3.3%, which compares favourably with the S&P 500’s 1.1% and the TSX’s 2.9%. For Canadian investors, UK income stocks can add a useful stream of dividends, though it’s worth knowing that UK dividends carry a 15% withholding tax under the Canada-UK treaty

 That tax can be recovered as a foreign tax credit in a non-registered account, but it can’t be reclaimed inside a TFSA, and unlike US dividends it isn’t exempt inside an RRSP either. Where you hold UK income stocks makes a real difference to what you keep, so it’s worth taking advice on account structure.

Companies like Spirax Group have a 58-year track record of dividend progress, while HSBC, Barclays and Glencore are among the biggest contributors to this year’s dividend growth.

How A Weak Pound Works In Your Favour

The GBP/CAD exchange rate has traded between roughly 1.80 and 1.88 throughout 2026, well below where it sat a couple of years ago. A softer pound means you’re buying UK assets at a currency discount. If sterling recovers over time, you’ll benefit from both the equity return and the currency gain.

This works particularly well with dividend-paying stocks. You’re picking up income at a lower cost in Canadian dollar terms, and any strengthening of the pound adds a tailwind. Currency cuts both ways, of course, but at current levels many analysts see the pound as undervalued.

What UK Wealth Managers See In Their Home Market

One thing that sets UK wealth management apart is the depth of expertise in domestic equity selection. Firms like Rathbones have been managing portfolios with a strong UK equity focus for over a century, combining individual stock picking with broader asset allocation.

For a Canadian investor weighing up UK exposure, that depth of home-market research is worth paying attention to, because it points to where managers who know the market best are finding long-term value, whether you access it through a fund, an ETF or a manager with UK expertise.

UK wealth managers tend to favour companies with strong cash generation, solid dividend cover and global revenue streams. They’ll often hold names across the FTSE 100 and FTSE 250, blending large-cap stability with mid-cap growth potential. There’s also been a wave of takeover activity among smaller UK-listed companies, with private equity firms often paying premiums of 30% or more, which tells you something about how the market is pricing these businesses versus their actual worth.

Don’t Sleep On London

UK equities have spent years in the shadow of the US market, but the fundamentals are hard to argue with. Cheap valuations, record dividend payouts, a favourable currency position and improving corporate governance all point in the same direction. For Canadian investors willing to look beyond North America, London’s stock market offers genuine value that’s getting harder to dismiss.

The value of your investments and the income from them may go down as well as up, and you could get back less than you invested. Past performance should not be seen as an indication of future performance.