The interim dividend is the amount of dividend issued during the year, and it is normally paid to the owners of the company’s stock whenever the company decides to pay its profits out. That means that the interim dividend is always lower than the final dividend, as the interim dividend is paid only if the board of directors decides that the company is able to pay its profits. Most of the time, the interim dividend is lower than the final dividend.
What is a dividend?
Whenever we invest our money in a financial instrument or another viable alternative, a common theme is the expectation of profit. Even the basic savings account offers an interest rate of 3%. But if we look at the investment in the company’s shares, the company does not have to pay interest.
It can be said that shareholders benefit from the increase in share price as the company performs. However, if a shareholder really wants to benefit from a rise in the share price, he or she must sell his or her stake. This means he would have to sell the shares to receive the income.
Instead, the company distributes or passes on a portion of its profits in the form of dividends, depending on the number of shares it owns. This amount serves as remuneration for the shareholders and, if paid regularly, constitutes a source of recurrent income.
But why do companies do this if they don’t have to?
Companies do this as a sign of gratitude. In effect, individuals invest money to help the business operate and grow. Moreover, dividends also increase the value of the company’s shares.
For example, you own 1,000 shares of XYZ Ltd. The company approves a dividend of Rs 1 per share held. This means that you, as an investor, will receive Rs. 1,000 for holding shares in XYZ Ltd.
Below is a sample of recent dividends paid by some popular companies in India:
|Builder of stoves
What is an interim dividend?
Interim dividends are dividends declared and paid prior to the publication of the annual accounts and prior to the annual general meeting of the company.
Dividends are paid from the retained earnings of the Company. Retained earnings are the portion of earnings set aside or not allocated in prior years.
Of the two dividends, the interim dividend is usually smaller. Dividends are generally paid when interim financial statements are issued during the year. These reports are usually not audited.
What is the final dividend?
A final or ordinary dividend is a dividend declared at the annual general meeting following the publication of the company’s financial report.
Here the dividends are declared by the board of directors after determining the total profit for the year.
The amount or percentage of profits that are paid out as a final dividend depends on what the board of directors wants to achieve and its intentions toward the shareholders.
The final dividend will only be declared and paid after the vote at the Annual General Meeting (AGM).
Examples of interim and final dividends
HDFC Life Insurance Company Ltd has scheduled an annual general meeting on 26.04.2021 to approve the audited financial statements of the company. The final dividend of Rs. 2.02 per share as of 30.06.2021 was also discussed and decided here.
In this case, the company did so at the annual general meeting following the approval of the financial statements.
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On the other hand, HDFC Life Insurance Company Ltd. had already declared an interim dividend of Rs. 1.63 lakhs and Rs. 1.36 lakhs declared. This was done between the respective years preceding the preparation of the financial statements.
Significant differences between interim and final dividends
|When will it be announced?
|Issued before the preparation of the annual accounts and between two annual general meetings.
|To be announced after the preparation of the annual accounts and at the annual general meeting
|When will it be announced?
|It is announced by the Board of Directors and then approved by the shareholders.
|It is recommended by the Board of Directors and announced by the members of the company at the annual general meeting.
|Can it be canceled after the announcement?
|It can be dissolved with the approval of the shareholders.
|It cannot be revoked.
|Lower than the final.
|Above the intermediate value
|If a provision in the articles of association is required
|It can only be declared if the law allows it.
|No statutory provision is required for the declaration of the final dividend.
|Withdrawal from the company’s retained earnings and free reserves.
|Paid on the annual profit generated by the company.
Explanation dividend dates – the dates dividend investors need to know!
Dividends give shareholders an extra incentive to hold shares and also create extra excitement in the markets.
We hope this material has helped you understand the intermediate and final dividends. Let us know your experiences with dividends or interim dividends in the comments below. Have fun investing!
Frequently Asked Questions
What is interim dividend?
An interim dividend is a dividend paid to shareholders of a company during a period of time when the company does not have a regular dividend.
What is meant by final dividend?
A final dividend is announced by the company after the preparation of the annual accounts and at the annual general meeting.
What is the main difference between an interim dividend and the final proposed dividend?
The interim dividend is a dividend that is paid to shareholders during the interim period between the issuance of a company’s annual report and the company’s annual meeting. The interim dividend is usually paid at a rate that is higher than the company’s final proposed dividend.
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