Dividend refers to a part of the organization’s profit that is not retained by the business but distributed among it’s owners, i.e. shareholders, based on the number of shares held by them as a return on their investment.
Definitions and meanings
Meaning of interim dividend:
Dividend recommended by the board of directors between two general meetings when substantial profits are generated is called interim dividend.
Definition of Interim Dividend:
The dividend which is announced by the company’s board of directors before the ascertainment of it’s annual profits or loss at any time between two consecutive annual general meetings. Interim dividend is paid out of a company’s retained profits or surplus of the accounting year in which it is being announced. In case of the company suffering a loss in the quarter immediately preceding the announcement, the rate of interim dividend should be less than the average dividend issued in the previous 3 years. Interim dividend once announced needs to be deposited within 5 days into a separate bank account.
Meaning of Final Dividend:
Dividend announced by the board of directors at a general meeting at the end of a given financial year based out of annual profits is called final dividend.
Definition of Final Dividend:
Dividend that a company announces after the financial statement for a particular financial year has been prepared and reported in the company’s annual general meeting. It is declared after ascertaining the annual profitability of a company. Once declared, it becomes an obligation of the company to pay the shareholders enforceable by law. A part of the profit must be transferred to a reserve before declaration of dividend. The amount transferred can be freely determined by the company’s board of directors. In case the company incurs a loss and wishes to announce dividend, it may issue the same from its free reserves.
Difference between interim and final dividend
The important points of difference between interim dividend and final dividend are given below:
Interim dividend is recommended by the Board of Directors and approved by the shareholders of a company while the final dividend is announced by the Board of directors.
While interim dividend is declared between two general meetings, final dividend is announced at the annual general meeting of a company.
3. Time of declaration:
Interim dividend is announced before the preparation of the financial statements for a given year whereas the final dividend is announced only after preparation of a year’s financial statements.
4. Special provisions:
The company’s Articles of Association need to specifically permit the issue of interim dividend whereas final dividend needs no such provision.
5. Rate of dividend:
The rate of interim dividend is comparatively lower than that of the final dividend of a company. Usually interim dividend is announced only when a company makes profits over and above the general surplus.
6. Revocation of dividend:
Interim dividend, once announced, can be revoked with the consent of the shareholders but final dividend once announced cannot be revoked.
Interim dividend versus final dividend – tabular comparison
A tabular comparison of interim dividend and final dividend is given below:
|Recommended by the board of directors and approved by shareholders.||Announced by the board of directors.|
|Between two general meetings.||At the annual general meeting.|
|Declaration time period|
|Before financial statements are prepared.||After financial statements are prepared.|
|Articles of association|
|Specific provision is required to be issued.||No specific provision required.|
|Revocation of dividend|
|Can be revoked with approval of the shareholders||Cannot be revoked once announced.|