Interim Dividends Meaning - Why is it Important? | Espresso

Interim Dividends: What is it?

When you think about investing in the share market, you will either adopt a dividend investing approach or growth investing approach. As a novice investor, it might be difficult for you to understand what they mean. However, you need to comprehend the differences between the two to be a better investor in the long run.

Published on 25 January 2022

Those who go for the dividend investing approach usually invest in a profitable and stable business that has had its presence for several years now. Therefore, they hope for a steady source of income through their investment in the interim dividends of the company.

Suppose you are a beginner in investing and looking forward to adopting this approach. It is prudent to be aware of this concept and learn the differences between the final dividend and the interim dividend.

What Exactly is a Dividend?

Before learning about what are interim dividends, let’s find out what dividends are all about. The shareholders of equities of a company are treated as its owners. Since they own the business, they are naturally entitled to the company profits. Therefore, the company distributes its profits periodically to its equity shareholders through cash payments termed dividends.

Although the dividends are generally paid in cash, it is not necessarily the only means of giving out dividends to the shareholders. For example, some businesses often pay dividends by allotting some shares to the shareholders instead of cash. So, the dividends which are paid out in terms of shares/stocks are called stock dividends.

So, now that you know the meaning of dividends let’s look at what interim dividends are.

Interim Dividend - Meaning

Interim shares or dividends are the payments where a company pays out the dividend to its shareholders before conducting the Annual General Meeting. Such dividends are proposed by the company and distributed amongst the shareholders before preparing the concluding financial reports.

Therefore, the final dividends are paid out once, and the interim dividends are paid more than once, anytime throughout the financial year. Usually, most companies prefer distributing the dividends either quarterly or semi-annually, along with the issue of quarterly and semi-annual financial accounts of the businesses.

Given that the interim dividends are issued more frequently to the company’s shareholders, their rates are generally lower than the final dividends. But, again, the interim dividends are not always paid out in cash either. Certain companies issue interim shares dividends instead of cash dividends.

How Are Interim Dividends Different from the Final Dividends?

Here are some of the differences between the two:

  • Declaration and approval: For final dividends, the company’s board of directors just propose the idea. Then the shareholders of the business take the issue into consideration, vote for the same, and finally provide approval for the disbursement of the dividends.

For interim dividends, on the other hand, it is the board of directors who declare, vote and approve the disbursement of the dividends.

  • Funding: The final dividend is declared once the preparation and the audit of the final financial reports are over. For interim dividends, the company uses its cash reserves like retained profits to pay out the dividends.

Conclusion

So, now you must have got the idea about interim shares and the final dividends. Also, you must know that interim dividends of a company are always almost accompanied by the final dividend.

However, when a company pays out both the interim dividends and the final dividends, the dividend rates of the final dividend are usually lower than that of a company that only provides final dividends to its shareholders.
Also Read: How to Earn in Share Market?

Chandresh Khona
Team Espresso

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