Difference Between Interim Dividend And Final Dividend

The primary difference between an interim dividend and a final dividend is that an interim dividend is paid by a company to its shareholders before the financial year ends, whereas a final dividend is paid after the company’s financial year-end. 

A final dividend is paid upon releasing the financial year’s final results, whereas an interim dividend is given in between. Final dividends are issued as a reward for continuing to be a shareholder until the conclusion of the fiscal year, whereas interim dividends are often paid to give investors a return on their investment while they wait for the final results.

Meaning Of Interim Dividend

An Interim dividend is a dividend declared by the board of directors of a company before the end of its fiscal year. It is paid from the company’s profits earned during the current financial year. 

However, the precise profits for the full financial year are unknown when the interim dividend is declared. This is because the final accounts for the entire financial year are typically not prepared until after the end of the financial year after the annual financial statements have been audited. 

Therefore, the interim dividend is provisional, as the company’s actual profits for the full fiscal year may be higher or lower than the estimated profits when the interim dividend was declared.

What Is the Final Dividend?

A final dividend is a dividend declared by a company’s board of directors after the conclusion of its financial year, once the annual accounts for the entire financial year have been prepared and audited. 

Based on these audited profits, the board determines how much dividend can be distributed to shareholders. The board then proposes the final dividend amount to the shareholders for ratification at the annual general meeting.

As compared to interim dividends, which are provisional, the final dividend reflects the actual earnings and the utmost amount that can be distributed to shareholders. It considers the company’s performance for the entire fiscal year. Once approved, the final dividend is distributed to shareholders, concluding the distribution of dividends for the fiscal year.

Interim Vs Final Dividend

The primary difference between interim and final dividends is that interim dividends are declared during the year based on estimated profits, while final dividends are declared after the year once actual profits are known. Interim dividends are provisional, whereas final dividends distribute the year’s utmost possible profits.

Interim DividendFinal Dividend
Declared by the board during the financial year based on estimated profits for that year.Declared by the board after the end of the financial year once annual accounts are ready.
Paid out of profits earned during the current financial year but before final accounts.Paid out of actual profits earned for the entire financial year per audited annual accounts.
Profits for the full year are not yet known; the amount is provisional.Profits for the full year are finalized; the amount is not provisional.
Provides regular cash flow to shareholders before final accounts.Completes dividend distribution for the financial year.
Usually lower amount than the anticipated final dividend.Maximum possible dividend amount that can be distributed.
Deducted from the final dividend amount.Not deducted as distribution is based on actual profits.
Timing – during the financial year. Timing – after the financial year ends.
Nature – interim/provisionalNature – final distribution based on performance

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Distinguish Between Interim Dividend And Final Dividend – Quick Summary

  • Interim dividends are distributed during the fiscal year based on estimated profits, whereas final dividends are distributed after the fiscal year once actual profits are determined.
  • An interim dividend is declared before the end of the fiscal year based on estimated profits and paid out of profits earned during the current fiscal year but before the finalization of accounts. 
  •  Final dividends are declared after the end of the fiscal year once annual accounts have been prepared. They are based on the actual profits earned for the entire fiscal year according to audited financial statements.
  • Interim is based on estimated profits throughout the year; final is based on actual profits at the end of the year.

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Interim Vs Final Dividend – FAQs  

What is the Difference Between Interim Dividend And Final Dividend?

The key differences between the interim dividend and the final dividend are the timing of the distribution of earnings to shareholders, the approval procedure, and the basis of financial success. During the final year, interim dividends are distributed to shareholders before the completion of the annual financial statements, while final dividends are given out only after these statements have been confirmed at the annual general meeting. Income is received periodically through interim dividends, which are announced by the board of directors and do not require approval from shareholders.

Why Is Interim Dividend Paid?

The purpose of paying interim dividends is to give shareholders a regular income and allow them to participate in the portion of the company’s earnings created before the fiscal year’s conclusion. They can live up to investors’ expectations for consistent returns and assist in attracting investors looking for reliable income streams. When a company’s financial performance allows it, it may pay out interim dividends. It helps the company preserve goodwill with customers and investor trust. However, it is essential to balance distribution and the retention of funds for operational requirements and growth.

Is Interim Dividend Taxable?

In most cases, interim dividends are subject to taxation. Whether paid out as interim or final dividends, dividends are seen as a kind of income and are thus taxable. This is the case regardless of when the dividends are distributed. The recipient’s nation of residence, the tax laws of the area where the corporation is located, and any tax treaties that may be relevant are all elements that influence the taxation rules that apply. To better understand their individual tax obligations concerning income from interim dividends, shareholders should seek the advice of tax specialists or relevant authorities.

Who Is Eligible For Final Dividend?

All shareholders who held the company’s shares as of the record date established by the company are eligible to receive final dividends from the company. On this day, the shareholders who are eligible to receive the dividend payment will be identified. If the shareholders at the annual general meeting vote in favour of the dividend, then any shareholder who had shared on the record as of the record date will be entitled to receive the final dividend payment. This applies to individual investors as well as institutional investors.

Can Shareholders Reject The Interim Dividend?

Once an interim dividend has been issued by the board of directors of a company, the shareholders often do not have the option to reject the payout individually. The management of the company is the one that will decide whether or not to declare and pay out an interim dividend. If shareholders would rather not receive the dividend, they can sell their shares on the stock market before the day the company begins trading without the dividend. However, they cannot stop the company from paying an interim dividend if it has been approved and declared by the board of directors.

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