Owners of a publicly traded company are known as the company’s shareholders. Individuals make investments in firms by purchasing shares, thereby becoming shareholders of the firm. The returns that shareholders get from their investment include capital appreciation and dividend income. Dividends are profits that are distributed among the company’s shareholders. There are a number of different types of dividends including interim dividend and final dividend. The article thoroughly explores these two types of dividends and provides a clear overview of the similarities and differences between interim dividend and final dividend.
What is Interim Dividend?
Interim dividend is paid to shareholders before the company’s final annual earnings are to be ascertained. Interim dividends are paid out at the time that the company reports its profits and interim financial statements for the period. Interim dividends are paid from undistributed profits that have been brought forward. Interim dividends may be paid quarterly or every six months, depending on the reserves that the company holds. When making an interim dividend payment, companies need to make sure that they have enough brought forward profits and reserves to make the dividend payments. In the event that the firm faces some unexpected financial difficulty during the rest of the reporting period, changes will be made at the next dividend payment or the year-end final dividend payment.
What is Final Dividend?
As its name suggests, final dividends will be paid at the end of the financial year. Final dividends are declared and calculated once the company’s overall financial position and profitability has been determined. Since final dividends will be paid out once the company’s end of year financial statements have been prepared and audited, the decisions regarding final dividend payments will be fuelled by more insights and information on the company’s financial health. This means that in the event that the company is unable to make dividend payments at year end, the dividends maybe carried forward to the next accounting period. As companies do not need to worry about the discrepancy between actual revenues and projected revenues, final dividends are paid with financial certainty. This also makes final dividends payments one of the highest payouts that a company will make during their financial year.
What is the difference between Interim and Final Dividend?
Dividends are payouts made by companies to their shareholders as a return for the investment that shareholders make in firms. In years that companies make profits they have the choice of either reinvesting the profits in the firm in order to further invest and expand or to distribute these profits to shareholders in the form of dividend payments. Whether a company retains profits or pays out dividends will depend on each company’s goals and objectives. The main difference between interim dividends and final dividends are the time period in which dividend payments are made. While interim dividend payments are made during the financial year (quarterly or every six months) final dividend payments are made at the end of the financial year. Interim dividends will be paid out of the company’s reserves and retained earnings and profits. Final dividends are paid during the following year.
Summary:
Interim Dividend vs Final Dividend
• Dividends are profits that are distributed among the company’s shareholders. There are a number of different types of dividends including interim dividends and final dividends.
• Interim dividends are paid from undistributed profits that have been brought forward. Interim dividends may be paid quarterly or every six months depending on the reserves that the company holds.
• Final dividends will be paid at the end of the financial year. Since final dividends will be paid out once the company’s end of year financial statements have been prepared and audited, the decisions regarding final dividend payments will be fuelled by more insights and information on the company’s financial health.
• The main difference between interim dividend and final dividend are the time period in which dividend payments are made.