Table of Contents
INTERIM DIVIDEND MEANING
Interim dividend is the dividend, which is announced and paid before the company has issued its annual financial statements. It is declared by the board of directors. The company might have the policy to pay dividend more than once in a year. So the dividends announced in between the two annual general meetings are considered interim dividends.
Interim dividend, as suggested by the name, relates to the business activities of less than a year. It is generally paid semi-annually or quarterly. Also, they are accompanied by the interim statements issued by the company. Board of directors generally announces the interim dividend when the company has enough retained earnings and it is observing higher than expected earnings.
FINAL DIVIDEND MEANING
Final dividend is the dividend, which is paid after the company has issued its annual financial statements for a fiscal year.
Final dividend relates to business activities of a whole fiscal year. It is proposed by the board of directors based on the earnings results available.
Shareholders vote on it and approve it at the annual general meeting (AGM).
The Interim dividend rate is mostly lower than the final dividend rate. Board of directors should be conservative in announcing interim dividend so that company’s ability to pay the final dividend is not impaired by less than expected earnings at the end of the year. Factors like growth prospects of the company, sales orders in hand, seasonal factors and economic outlook will affect the future profitability of the company. Directors should take all of these factors into consideration to make decisions related to the interim and the final dividend.
INTERIM DIVIDEND VS FINAL DIVIDEND
|Points||Interim Dividend||Final Dividend|
|Meaning||It is the dividend which is declared and paid before the annual financial statements are issued for a fiscal year.||It is the dividend which is paid after the annual financial statements are issued for a fiscal year.|
|Timing||It is paid semiannually or quarterly in the middle of a fiscal year.||It is paid annually after the end of fiscal year.|
|Shareholder’s Approval||It is declared by the board of directors. Some jurisdictions also require shareholders’ approval while some don’t.||It is proposed by the board of directors. It compulsorily requires shareholders’ approval at the AGM.|
|Cancellation||Generally, It can’t be canceled once declared. While in some jurisdictions, it can be canceled through shareholders’ vote.||It can’t be canceled once declared. It becomes a liability for the company.|
|Articles of Association||It can only be declared if articles of association allow it.||It does not require any specific mention in the articles of association for declaration.|
|Dividend Rate||It is lower than the final dividend rate.||It is higher than the interim dividend rate.|
- Financial Management by Ravi M. Kishore