Dividends are a percentage of the earnings of a company that the company does not maintain. Instead, they are allocated to the investors, or shareholders, in proportion to the number of shares they hold in the concerned company.
Dividend vs Interim Dividend
The main difference between Dividend and Interim Dividend is that the latter is authorised by the Board of Directors of a company. Dividend, however, is decided by the shareholders and their votes in their Annual General Meeting. An Interim Dividend is the type of dividend that can be cancelled or rectified, whereas a Dividend cannot be changed. Once decided in the meeting, the Dividend is declared unchangeable.
When a company gets profit, it divides the profit earned to its shareholders, and that is what dividend is – the sharing of profit and rewarding the shareholders, which is shared in various forms like cash or stocks. During the early stage of a company, the dividends are rarely distributed as they re-invest the profit in their own company. In contrast, big companies tend to reward their loyal investors by sharing their portion of profit to keep them connected.
An Interim Dividend is decided before the final report of the year in a company and is distributed quarterly. The word “interim” here means less than a year’s financial activity so, an interim dividend is planned out before the ending of a financial year and is less than the final dividend.
Comparison Table Between Dividend and Interim Dividend
| Parameter of comparison | Dividend | Interim Dividend |
| Definition | A dividend is the portion of a company’s profits that are distributed to its shareholders. | The interim dividend is a dividend that is decided and distributed before the final financial activity report. |
| Time | It is declared after the final profit has been measured and financial statements have been prepared. | It is declared before the calculation of final earnings and the preparation of financial statements. |
| Rate | High rates. | Low rates. |
| Declaration | It is declared by the Annual General Meeting. | It is declared by the Board of Directors. |
| Payment | Annually. | Quarterly. |
What is Dividend?
A dividend is the payment of a company’s profits to its shareholders rewarded by the board of directors of the firm. Dividends are mostly paid in the form of cash or stock. At the company’s annual general meeting, the payment of a dividend is considered a regular business. Before declaring a dividend, the corporation must transfer a portion of its earnings to its reserve. As a result, the organisation has total leverage over the amount of money set aside for funds.
Dividends are distributions made by publicly traded firms to investors as a thank you for their investment. Shareholders must support dividends by their voting rights. Even though cash dividends are the most popular, dividends are also paid in stocks or properties. Besides, dividends are also delivered from mutual funds or exchange-traded funds.
The best dividend payers are typically more significant, more stable firms with consistent earnings. These businesses are more likely to pay out regular dividends because they want to optimise shareholder capital in ways other than traditional growth.
Since dividends are irrevocable, they result in being deleted from the company’s records or accounts. As a result, dividend payments affect share price, which can rise by roughly the amount of the dividend announced on the announcement and then fall by a similar amount in the opening session of the ex-dividend date.
What is Interim Dividend?
A dividend paid before a company’s annual general meeting (AGM) and the filing of final financial statements is known as an interim dividend. Interim financial statements of the company come with this declared dividend. In most cases, the interim dividend tends to be the more secondary of the two distributions allocated to shareholders. They are usually paid out of the reserved earnings in the profit and loss account or out of the financial year income in which the dividend was to be declared.
Individuals invest in businesses by purchasing bonds or stocks. Bonds usually pay a regular interest rate and provide investors preference in the case of bankruptcy, but they do not benefit from share price appreciation. While stocks do not yield interest, they do give dividends in some cases.
Dividend payments allow the shareholders to benefit from both regular dividends and interim dividends. Even though the Board of Directors declares an interim dividend, it must be unanimously accepted by the shareholders too.
Interim dividends are generally paid out more regularly to a company’s equity owners, and their dividend rate is almost always lower than the final dividend.
Main Differences Between Dividend and Interim Dividend
- A dividend is paid after the year’s accounting is done, whereas an Interim Dividend is paid before the year’s accounting.
- Under no conditions will Dividend be cancelled, whereas Interim Dividend can be cancelled if the company decides so.
- Dividend rates are often higher than Interim Dividend rates.
- Interim dividends must be expressly approved in the company’s Articles of Association, while dividends do not require such a clause.
- The interim dividend is declared between two general meetings, while the dividend is declared at the company’s annual general meeting.
Conclusion
Dividends are a form of appropriation of benefit that gives shareholders a return on their investment. While the interim dividend is only paid for a portion of the year, usually six months, the final dividend is paid for the whole year or fiscal year.
While dividends are given out after a year of financial earnings, interim dividends are rewarded out quarterly and out of the previous year’s surplus income.
A person investing his time in the stock market needs to get the concept of dividends very clearly to advance his money in the right company. While final dividends are usually higher in rate, they are generally not so risky. On the other hand, interim dividends are lower in rate, but they are perilous if the concerned company goes into the loss.
References
- https://www.tandfonline.com/doi/abs/10.1080/1351847022000028430
- https://www.sciencedirect.com/science/article/pii/S0929119912000892
- https://search.proquest.com/openview/dbacfaa1b99cd11abb32f52c4a4ce605/1?pq-origsite=gscholar&cbl=49137