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.

RELATED TERMS
  1. Dividend

    A dividend is a distribution of a portion of a company's earnings, ...
  2. Dividend Rate

    The dividend rate is the total expected dividend payment from ...
  3. Stock Dividend

    A stock dividend, also known as a scrip dividend, is a dividend ...
  4. Dividend Frequency

    Dividend frequency is how often a dividend is paid by an individual ...
  5. Property Dividend

    A property dividend is an alternative to cash or stock dividends. ...
  6. Accumulated Dividend

    An accumulated dividend is a dividend on a share of cumulative ...
Related Articles
  1. Investing

    Why dividends matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
  2. Investing

    How Dividends Affect Stock Prices

    Find out how dividends affect the underlying stock's price, the role of market psychology, and how to predict price changes after dividend declarations.
  3. Investing

    Put Dividends to Work in Your Portfolio

    Find out how a company can put its profits directly into your hands.
  4. Investing

    AAPL: Apple Dividend Analysis

    Apple's dividend has had healthy growth ever since its 2012 reinstatement, thanks to Apple's continuously rising revenue, earnings and operating cash flow.
  5. Investing

    Is Dividend Investing a Good Strategy?

    Understanding dividends and how they generate steady income for shareholders will help you become a more informed and successful investor.
  6. Investing

    The Risks of Chasing High Dividend Stocks

    Dividend stocks offer enticing yields, but a lot can go wrong on the way to collecting that dividend payout.
  7. Financial Advisor

    4 Reasons a Company Might Suspend Its Dividend

    Learn about the four most common reasons a company may choose to suspends its dividends, including financial trouble, funding growth and unexpected expenses.
RELATED FAQS
  1. Cash Dividends or Stock Dividends: Which is better?

    The purpose of dividends is to return wealth back to the shareholders of a company. There are two types of dividends: cash ... Read Answer >>
  2. How do dividends affect retained earnings?

    Find out how distribution of dividends affects a company's retained earnings, including the difference between cash dividends ... Read Answer >>
Hot Definitions
  1. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  2. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  3. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  4. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  5. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
  6. Hedge Fund

    A hedge fund is an aggressively managed portfolio of investments that uses leveraged, long, short and derivative positions.
Trading Center