What is an 'Interim Dividend'?

An interim dividend is a dividend payment made before a company's annual general meeting and the release of final financial statements. This declared dividend usually accompanies the company's interim financial statements. The interim dividend is issued more frequently in the United Kingdom where dividends are often paid semi-annually. The interim dividend is typically the smaller of the two payments made to shareholders.

BREAKING DOWN 'Interim Dividend'

Individuals invest in companies through bonds or stocks. Bonds pay a set rate of interest, and investors have seniority over shareholders in the case of bankruptcy, but investors do not benefit from share price appreciation. Stocks do not pay interest, but some do pay dividends. Dividend payments allow shareholders to benefit from earnings growth through both interim and final dividends as well as share price appreciation. An interim dividend is declared by directors and is subject to shareholder approval. By contrast, a normal dividend, also called a final dividend, is voted on and approved at the annual general meeting once earnings are known. Both interim and final dividends can be paid out in cash and stock.

Final vs. Interim Dividends

Dividends are paid out per share owned. For example, if you own 100 shares of company A, and company A pays out $1 in dividends every year, you will receive $100 in dividend income every year. If company A doubles its dividend, the company will pay out $2 per share, and investors will receive $200 annually. Final dividends are announced and paid out on an annual basis along with earnings. Final dividends are announced after earnings are determined, but interim dividends are paid out of retained earnings, not current earnings.

Retained earnings can also be thought of as undistributed profits. These dividends are typically paid on a quarterly or six-month basis before the end of the year. Interim dividends are paid every six months in the United Kingdom and every three months in the United States. Companies declare and distribute an interim dividend during an exceptional earnings season or when legislation makes it more advantageous to do so.

A final or regular dividend can be a set amount that is paid every quarter, six months or year. It can be a percentage of net income or earnings. It can also be paid out of the earnings leftover after the company pays for capital expenditures and working capital. The dividend policy or strategy used is dependent on management's goals and intentions for shareholders. 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 are unaudited.

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