Final Dividend vs. Interim Dividend

Attribute	Final Dividend	Interim Dividend
Definition	Declared and paid at the end of the financial year	Declared and paid during the financial year before the final accounts are prepared
Timing	Announced after the financial year-end	Announced during the financial year
Frequency	Once a year	Multiple times a year
Amount	Based on the company's profits for the entire year	Based on the company's profits for a specific period
Approval	Approved by shareholders at the Annual General Meeting	Approved by the Board of Directors
Impact on Financial Statements	Recorded as a liability in the financial statements	Recorded as a liability in the financial statements
Dividend Tax	Subject to dividend tax	Subject to dividend tax

Introduction

Dividends are a way for companies to distribute a portion of their profits to shareholders. They can be paid out in different forms, such as cash, stock, or property. Two common types of dividends are final dividends and interim dividends. While both serve the purpose of rewarding shareholders, there are distinct differences between the two. In this article, we will explore the attributes of final dividends and interim dividends, highlighting their unique characteristics and the circumstances under which they are typically declared and paid.

Final Dividend

A final dividend, as the name suggests, is the dividend paid at the end of a financial year. It is the last dividend declared by a company for that particular year. Final dividends are usually declared at the company's annual general meeting (AGM) after the financial statements have been finalized and audited. The declaration of a final dividend is subject to the approval of the shareholders, who vote on the proposed dividend amount.

Final dividends are typically paid out in cash, although some companies may offer the option of receiving dividends in the form of additional shares or other assets. The amount of the final dividend is determined by the company's profitability and the board of directors' decision on the portion of profits to be distributed among shareholders. It is important to note that the final dividend is paid to all shareholders who hold the company's shares on the record date, regardless of when they purchased the shares during the financial year.

One of the key characteristics of a final dividend is its permanence. Once declared and approved, the final dividend becomes a liability of the company, and the company is legally obligated to pay it to the shareholders. The final dividend is reflected in the company's financial statements as a liability until it is paid out. If a shareholder sells their shares after the record date but before the payment date, they are still entitled to receive the final dividend.

Final dividends are often seen as a way for companies to reward their shareholders for their investment and loyalty. They provide a tangible return on investment and can be an important factor for investors when considering whether to buy or hold shares in a company.

Interim Dividend

Unlike final dividends, interim dividends are paid out during the financial year before the final financial statements are prepared. Interim dividends are declared by the board of directors based on the company's interim financial results. These results are usually unaudited and provide a snapshot of the company's performance for a specific period, such as six months.

The declaration of an interim dividend does not require shareholder approval, as it is at the discretion of the board of directors. The board considers various factors, including the company's profitability, cash flow, and capital requirements, when deciding whether to declare an interim dividend. The amount of the interim dividend is also determined by the board, taking into account the company's financial position and the expected full-year results.

Interim dividends are typically paid out in cash, similar to final dividends. However, some companies may choose to offer the option of receiving dividends in the form of additional shares or other assets. The payment of interim dividends is made to shareholders who hold the company's shares on a specific date, known as the ex-dividend date. This date is set by the stock exchange and is usually a few days before the payment date.

One important characteristic of interim dividends is their flexibility. Unlike final dividends, which are legally binding once declared, interim dividends can be adjusted or canceled if the company's financial position deteriorates or if there are unforeseen circumstances. The board of directors has the authority to modify or withdraw the interim dividend declaration if they believe it is in the best interest of the company and its shareholders.

Interim dividends are often seen as a way for companies to provide regular income to shareholders throughout the year. They can be particularly beneficial for income-focused investors who rely on dividends as a source of cash flow. Interim dividends also allow companies to share their profits with shareholders in a timely manner, rather than waiting until the end of the financial year.

Comparison

Now that we have explored the attributes of final dividends and interim dividends, let's compare the two:

• Timing: Final dividends are paid at the end of the financial year, while interim dividends are paid during the financial year before the final financial statements are prepared.
• Declaration: Final dividends require shareholder approval, usually at the annual general meeting, while interim dividends are declared at the discretion of the board of directors.
• Financial Statements: Final dividends are declared after the financial statements have been finalized and audited, while interim dividends are declared based on unaudited interim financial results.
• Liability: Final dividends become a liability of the company once declared, while interim dividends can be adjusted or canceled if necessary.
• Payment Date: Final dividends are paid to all shareholders on the record date, regardless of when they purchased the shares, while interim dividends are paid to shareholders who hold the shares on the ex-dividend date.
• Purpose: Final dividends are a way for companies to reward shareholders for their investment and loyalty, while interim dividends provide regular income to shareholders throughout the year.

Conclusion

Final dividends and interim dividends are both important mechanisms for companies to distribute profits to their shareholders. While final dividends are paid at the end of the financial year and require shareholder approval, interim dividends are paid during the financial year and are at the discretion of the board of directors. Final dividends are legally binding once declared, while interim dividends can be adjusted or canceled if necessary. Understanding the attributes and differences between final dividends and interim dividends can help investors make informed decisions and better understand the financial health and performance of the companies in which they invest.