What Is a Final Dividend?
A final dividend is declared at a company's annual general meeting (AGM) for a given fiscal year. This amount is calculated after all year-end financial statements are recorded and the directors are made aware of the company's profitability and financial health. This is different than the interim dividend, which is made before a company's final financial statements are known, audited, and released.
A term used more frequently in the United Kingdom, the final dividend is generally the largest payout by a company for a given year.
- Decided and declared at a company's annual general meeting (AGM) for a given fiscal year, a final dividend is based on the picture painted by the year-end financial statements.
- The final dividend is generally a larger payout than the interim dividend(s) offered by a company at other times of the year.
- A final dividend is not to be confused with a liquidating dividend, the last payout issued to shareholders when a company is closing down, significantly shrinking, or being acquired.
Understanding a Final Dividend
A final dividend can be a set amount that is paid quarterly (the most common course), semiannually, or yearly. It is the percentage of earnings that is paid out after the company pays for capital expenditures and working capital. The dividend policy chosen is dependent on the discretion of the board of directors.
Interim dividends can follow the same strategy as final dividends, but since interim dividends are paid out before the end of the fiscal year, the financial statements that accompany interim dividends have not yet been audited.
Dividend payments allow shareholders to receive income and benefit from earnings growth. While an interim dividend is declared by directors and is subject to shareholder approval, a final dividend is voted on and approved at the AGM once earnings are known. Dividends can be paid out in cash and/or stock for both interim and final dividends.
Example of a Final Dividend
As an example, if you own 500 shares of company XYZABC, and company XYZABC pays out $1.50 in dividends every year, you will receive $750 in dividend income every year. If company XYZABC doubles its dividend to $3 per share, investors will receive $1,500 annually. Final dividends are announced and typically paid out on an annual basis along with earnings.
Final Dividend vs Interim Dividend
A final dividend usually is contrasted with an interim dividend, which is a payout made before end-of-fiscal year statements and annual general meetings. This declared dividend is generally smaller than the final one, and usually accompanies the company's interim financial statements.
Interim dividends are paid in the middle of a fiscal year in the United Kingdom and every three months in the United States. However, they can also be declared and distributed during an exceptional earnings season or when a legislative act or deadline makes it more advantageous to do so.
Final Dividend vs Liquidating Dividend
Sometimes the term "final dividend" may refer to the last dividend issued to shareholders when a company is ending its existence. However, this type of payment is more commonly known as a liquidating dividend. A liquidating dividend is a payout that a corporation makes to its stockholders during a partial or full liquidation—that is, breaking up and shutting down—of the business.
For the most part, a distribution such as a liquidating dividend is made from the company's capital base. As a return of capital, it is typically not taxable for shareholders. This distinguishes a liquidating dividend from interim and final dividends, which are issued from the company's operating profits or retained earnings.