What is an 'Interim Dividend'

An interim dividend is a dividend payment made before a company's AGM and final financial statements. This declared dividend usually accompanies the company's interim financial statements. This is used more frequently in the United Kingdom, where it is usual for dividend payments to occur semi-annually. The interim dividend is generally the smaller of the two payments made to shareholders.

BREAKING DOWN 'Interim Dividend'

There are two main ways that investors can invest in a company, through bonds or stocks. Bonds pay a set rate of interest, and investors have seniority over shareholders in case of bankruptcy, but they don't give investors the ability to participate in share price appreciation. Stocks don't pay interest, but some do pay dividends. Dividends also 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 subject to shareholder approval. By contrast, a normal, or final dividend is voted on and approved at the annual general meeting (AGM) once earnings are known. Both interim and regular, or final, dividends can be paid out in cash and/or 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 their dividend it means they will pay out $2 per share and you will get $200 annually. Final dividends are announced and paid out on an annual basis along with earnings. That is, final or regular dividends are announced after earnings are determined. Interim dividends, however, are paid out of retained earnings, not current earnings. Retained earnings can also be thought of as undistributed profits. As such, these dividends are generally paid on a quarterly or six-month basis, prior to the end of the year. Interim dividends are paid every six months in the UK, and every three months in the United States. Companies generally 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 every quarter, six months, or a 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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