A Company may pay two types of dividends to its shareholders. One is interim dividend and another is regular dividends. Regular dividends are also referred to as the final dividends. Regular dividends are paid at regular intervals, such as monthly, quarterly, or yearly. Interim dividends are the special payments that some companies pay their shareholders on some occasions.
Final Dividends are paid from the Current earnings where Interim dividends are paid from the retained earnings of the companies.
What are interim dividends?
- The Interim dividend is paid in the middle of the fiscal year.
- It is announced before the company’s accounts are finalized.
- With the consent of all shareholders it could be revoked.
- Interim dividends have the positive impact on the share price of the company.
- The directors of the company declare interim dividends.
- It can be paid by Cash or Stocks.
An interim dividend is declared after the audit of the mid-year financial statement of a company, whereas the Final dividend is declared after the audit of the year-end financial statements of a company. However, a dividend cannot be considered as an interim dividend once declared after the year-end financials.
Interim dividends are announced by the directors before the determination of the annual profit or loss and the Annual General Meeting IAGM) of the company. The rate of interim dividends cannot be greater than the final dividend. The commonly interim dividend is around 10% of shares held in any one dividend period. However, because companies don’t hold all their cash reserves in liquid assets like stock market securities, interim dividends may also include bonuses issued via stock options or new shares issued by certain companies.
Interim dividends are early indicators for whether or not a company will meet analysts’ expectations. It is called insider trading, and when the information leaks in the market, the share price reacts positively.
Interim dividend distribution process:
Interim dividends can be distributed in the form of cash or stock. Cash distributions consist of monetary payouts that provide immediate money to shareholders without diluting the equity ownership of existing shareholders.
Stock dividends represent the distribution of new shares directly to current stockholders.
Interim dividends create trust and a healthy relationship between shareholders and the company. Shareholders prefer dividends today rather than in the future. Present and potential investors consider it as a sign of confidence of the board of directors that may create a positive vibe about the company. However, before paying the Interim dividends, the company needs to follow all the rules that are required so that there will be no hindrance.