The interim dividend is a dividend paid before a company’s annual general meeting (AGM) and the release of full financial results. This declared dividend normally accompanies the company’s interim financial statements. The interim dividend amount is smaller than the final dividend in most cases.
Interim Dividends: What You Need to Know
Individuals invest in businesses by purchasing bonds or stocks. Bonds pay a fixed rate of interest and provide investors priority over shareholders in the event of bankruptcy, but they do not profit from the share price increase.
Although stocks do not pay interest, they do pay dividends in some cases. Dividend payments allow shareholders to profit from both interim and final dividends and a share price increase resulting from earnings growth. The board of directors declares an interim dividend, but shareholder approval is not required.
In contrast, once earnings are known, an ordinary dividend, sometimes known as a final dividend, is voted on and approved at the annual general meeting. Dividends can be paid in cash or shares annually, whereas interim dividends can be paid during any time of the year.
Interim Dividend Calculation
When a company pays both an interim and final dividend in the same fiscal year, the interim dividend is usually lower than the final dividend. For example, suppose the annual earnings are lower than predicted. In that case, the Board of Directors can choose to keep the interim dividend at a lower rate to avoid jeopardising the company’s capacity to function.
How Does the Interim Dividend Get Paid?
Interim dividends are distributed from retained earnings, including prior financial year profits. However, it’s usually not paid from current-year profits because the profits won’t be completely realised until the interim dividend is reported.
Dividends: Interim vs Final
Dividends are given out based on the number of shares owned. For example, if you hold 100 shares of company A and they give $1 in dividends each year, you will receive $100 in dividend income each year. If company A doubles its dividend, it will pay out $2 for each share, giving investors a total of $200 per year.
Final dividends are announced and paid along with earnings on an annual basis. Final dividends are declared when earnings are finalised; however, interim dividends are paid from retained earnings rather than current earnings.