Dividend vs Interim Dividend: Difference and Comparison

Dividends are a percentage of a company’s earnings that the company does not maintain. Instead, they are allocated to the investors, or shareholders, in proportion to the shares they hold in the company.

Key Takeaways

1. A dividend refers to the portion of a company’s profits distributed to its shareholders. In contrast, an interim dividend is paid to shareholders before the company’s financial year ends.
2. Dividends are paid regularly, whereas interim dividends are only paid when the company has excess profits.
3. While both dividends and interim dividends are a way for a company to distribute profits to its shareholders, interim dividends are smaller and paid out before the regular dividend payment.

Dividend vs Interim Dividend

The difference between Dividend and Interim Dividend is that the latter is authorised by the Board of Directors of a company. However, the shareholders decide the dividend and their votes in their Annual General Meeting. An Interim Dividend is a type of dividend that can be cancelled or rectified, whereas a Dividend cannot be changed. Once decided in the meeting, the Dividend is declared unchangeable.

When a company makes a profit, it divides the profit earned among its shareholders. That is what dividend is – sharing profit and rewarding the shareholders, which is shared in various forms like cash or stocks.

During the early stage of a company, the dividends are rarely distributed as they re-invest the profit in their own company. In contrast, big companies tend to reward their loyal investors by sharing their portion of the profit to keep them connected.

An Interim Dividend is decided before the year’s final report in a company and is distributed quarterly.

The word “interim” here means less than a year’s financial activity, so an interim dividend is planned out before the end of a financial year and is less than the final dividend.

Comparison Table

Parameter of comparison	Dividend	Interim Dividend
Definition	A dividend is a portion of a company’s profits distributed to its shareholders.	The interim dividend is a dividend that is decided and distributed before the final financial activity report.
Time	It is declared after the final profit has been measured and financial statements have been prepared.	It is declared before the calculation of final earnings and the preparation of financial statements.
Rate	High rates.	Low rates.
Declaration	The Annual General Meeting declares it.	The Board of Directors declares it.
Payment	Annually.	Quarterly.

What is a Dividend?

A dividend is the payment of a company’s profits to its shareholders rewarded by the firm’s board of directors. Dividends are mostly paid in the form of cash or stock.

At the company’s annual general meeting, a dividend payment is considered a regular business. Before declaring a dividend, the corporation must transfer a portion of its earnings to its reserve.

As a result, the organisation has total leverage over the money set aside for funds.

Dividends are distributions made by publicly traded firms to investors as a thank-you for their investment. Shareholders must support dividends through their voting rights.

Even though cash dividends are the most popular, dividends are also paid in stocks or properties. Besides, dividends are also delivered from mutual funds or exchange-traded funds.

The best dividend payers are more significant, stable firms with consistent earnings. These businesses are more likely to pay out regular dividends because they want to optimise shareholder capital in ways other than traditional growth.

Since dividends are irrevocable, they are deleted from the company’s records or accounts.

As a result, dividend payments affect share price, which can rise roughly the amount of the dividend announced on the announcement and then fall by a similar amount in the opening session of the ex-dividend date.

What is Interim Dividend?

A dividend paid before a company’s annual general meeting (AGM) and the filing of final financial statements is known as an interim dividend.

Interim financial statements of the company come with this declared dividend. In most cases, the interim dividend tends to be the more secondary of the two distributions allocated to shareholders.

They are paid out of the reserved earnings in the profit and loss account or the financial year income in which the dividend was to be declared.

Individuals invest in businesses by purchasing bonds or stocks. Bonds pay a regular interest rate and provide investors preference in the case of bankruptcy, but they do not benefit from share price appreciation.

While stocks do not yield interest, they sometimes give dividends.
Dividend payments allow the shareholders to benefit from regular and interim dividends.

Even though the Board of Directors declares an interim dividend, it must be unanimously accepted by the shareholders too.

Interim dividends are paid out more regularly to a company’s equity owners, and their dividend rate is almost always lower than the final dividend.

Main Differences Between Dividend and Interim Dividend 

1. A dividend is paid after the year’s accounting, whereas an Interim Dividend is paid before the year’s accounting. 
2. Under no conditions will Dividend be cancelled, whereas Interim Dividend can be cancelled if the company decides so. 
3. Dividend rates are higher than Interim Dividend rates. 
4. Interim dividends must be expressly approved in the company’s Articles of Association, while dividends do not require such a clause. 
5. The interim dividend is declared between two general meetings, while the dividend is declared at the company’s annual general meeting.

References

1. https://www.tandfonline.com/doi/abs/10.1080/1351847022000028430
2. https://www.sciencedirect.com/science/article/pii/S0929119912000892
3. https://search.proquest.com/openview/dbacfaa1b99cd11abb32f52c4a4ce605/1?pq-origsite=gscholar&cbl=49137