Dividend refers to a percentage of the organization’s profits that is not owned by the company but distributed among its owners or shareholders, based on the number of shares held in return for their investment. Essentially, a dividend is compensation paid to shareholders for holding shares in the company. Therefore, dividends are an important way for companies to encourage investors to buy their stocks.

Why do companies pay dividends?

In order to reimburse their shareholders for giving them the money to run the business, companies pay dividends out of their profits. The board is responsible for deciding what percentage of profits it uses to pay dividends and how much it can keep in the business. However, it is not mandatory for a company to pay dividends. It is possible to issue dividends in different ways, such as cash payments, shares or any other form. A company’s dividend is determined by its board of directors and must be approved by shareholders.

What is an interim dividend?

A dividend payment made before a company’s annual general meeting and the publication of final financial statements is an interim dividend. It is declared by the board of directors but is subject to the approval of the shareholders. The interim dividend is deducted from the retained earnings of a company or from the surplus for the year in which it is announced.
If a company records a loss before the specified dividend declaration, the average rate measured on the basis of dividends declared in the previous three fiscal years must be declared. It is deposited within five days of the declaration in a bank account to order. The same thing happens regardless of the relevant holidays.

What is the final dividend?

A final dividend refers to a dividend declared by the board of directors of a company after the publication of the annual financial statements for its financial year by the company. The company is obliged to transfer part of the profit to the reserve of the company before the declaration of dividend. The organization can then freely decide on the amount to be transferred to reserves.

A final dividend can be a fixed sum paid on a quarterly, semi-annual or annual basis. It is the amount of profit that is paid. The chosen dividend strategy depends on the discretion of the board of directors.

Here are the main differences between the interim dividend and the final dividend:

The interim dividend is announced by the Board of Directors, while the shareholders declare the final dividend at the Annual General Meeting.

Before closing the final accounts, an interim dividend is announced. A final dividend cannot be announced until the books have been prepared and the income has been calculated.

The interim dividend is generally six months for part of the year. A final dividend covers the whole year.

The directors can also cancel the interim dividend declaration after its announcement. After a final dividend has been paid, shareholders cannot reverse the declaration.

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