What is a Final Dividend
The final dividend is declared at a company's Annual General Meeting (AGM) for a given fiscal year. This amount is calculated after all financial statements are recorded and the directors are 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 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.
BREAKING DOWN Final Dividend
A final dividend can be a set amount that is paid quarterly, 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.
Difference Between a Final Dividend and Liquidating Dividend
While a final dividend may refer to the final dividend issued to shareholders when a company is ending its existence, this type of dividend is more commonly known as a liquidating dividend. A liquidating dividend is a type of payment that a corporation makes to its shareholders during a partial or full liquidation.
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. A liquidating dividend is distinguished from interim and final dividends that are issued from the company's operating profits or retained earnings.