What are Interim and Final Dividend? Definition & Key Differences!

By Trader Pit

July 9, 2021


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 decide that the company is able to pay its profits. Most of the time, interim dividend is lower than final dividend.

Today’s stock market trading market conditions in the US (and elsewhere) is focused on the question of whether or not the Federal Open Market Committee (FOMC) will announce a rate hike. Most investment professionals fear the Fed will raise rates this week and will likely do so. If rates go up, then the yields on Treasury bills and bonds will also rise. If yields go up, then bond prices will fall. If bond prices fall, then the value of stocks will also fall.

Interim and final dividends : We see investors get excited all the time when the financial jargon of dividends resonates. In this article, we look at what dividends are in order to understand two types of dividends: interim dividends and final dividends. Read on to find out!

What is a dividend?

Whenever we invest our money in a financial instrument or other 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:

 

COMPANY NAME Div Type Divorce (%) no dividend
Infosys Final 300 31-05-2021
CRISIL Intermediary 700 05-05-2021
Builder of stoves Final 220 03-05-2021
Angel Broking Intermediary 75 29-04-2021
HCL Technology Intermediary 300 29-04-2021
HCL Technology Special 500 29-04-2021
Nestlé Final 650 29-04-2021
Nestlé Intermediary 250 29-04-2021
Easy walk Intermediary 100 27-04-2021
Castrol Final 60 22-04-2021
Muthoot Finance Intermediary 200 22-04-2021
ABB India Final 250 19-04-2021
Britannia Intermediary 6200 08-04-2021
ACC Final 140 30-03-2021
Colgate Intermediary 2000 30-03-2021

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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 is paid out as a final dividend depends on what the board of directors wants to achieve and its intentions towards the shareholders.

The final dividend will only be declared and paid after the vote at the Annual General Meeting (AGM).

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 the smaller. Dividends are generally paid when interim financial statements are issued during the year. These reports are usually not audited.

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 on 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.

 

Short note
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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

 

Basic Interim dividend Final dividend
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 cancelled after the announcement? It can be dissolved with the approval of the shareholders. It cannot be revoked.
Dividend 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.
Source: Withdrawal from the company’s retained earnings and free reserves. Paid on the annual profit generated by the company.

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Final thoughts

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 slot or interim dividends in the comments below. Have fun investing!

Aron, who holds a Bachelor of Commerce degree from Mangalore University, came into the world of equity research to explore his interest in financial markets. Outside of work he watches soaps, encourages the RCBs and dreams of going to Kasol as soon as possible. He also believes that eating ice cream with kids is the best way to teach them about taxes.

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 the last dividend paid by a company before it goes bankrupt.

What is the main difference between interim dividend and 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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About the author

Trader Pit

A yogi who like Finance and Technology. I have been in Indian Stock market for over 12 years now as financial analyst, portfolio manager, trader. Now, I focus on Yoga, Financial Education & Long term investing. 

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