The primary difference between an interim dividend and a final dividend boils down to timing and authorization.
- An Interim Dividend is paid during the financial year, before the final profits are known. It’s like getting an advance payment on your share of the profits.
- A Final Dividend is paid at the end of the financial year, after the company’s full-year profits have been calculated and approved. It’s the main, final payment for the year.
Think of it like receiving your salary:
- The interim dividend is your monthly salary throughout the year.
- The final dividend is your year-end bonus declared after seeing the company’s full-year performance.
Table of Contents
Interim dividends and final dividends
| Feature | Interim Dividend | Final Dividend |
|---|---|---|
| Timing | Paid during the financial year (e.g., after Q1, Q2, or Q3 results). | Paid after the end of the financial year (e.g., after annual results are announced). |
| Frequency | Can be declared multiple times in a year. | Declared only once a year. |
| Authorization | Declared by the Board of Directors alone. | Declared by the Board of Directors but requires approval from shareholders at the Annual General Meeting (AGM). |
| Basis | Based on interim (quarterly/half-yearly) financial statements and estimated profits. | Based on the final, audited financial statements and the known full-year profit. |
| Amount | Typically smaller than the final dividend. | Typically larger than the interim dividend. |
| Flexibility | More flexible. The board can decide to skip it if mid-year performance is poor. | Less flexible. Once proposed and announced, it is a firm commitment. |
A Simple “Farmer’s Harvest” Analogy
Imagine a farmer with a mango orchard:
- Interim Dividend: In the middle of the season, the farmer sees that the crop is growing well. He picks a small basket of mangoes and sells them at the local market, giving a share of that early income to his partners. This is the interim dividend—an early payment based on a good forecast.
- Final Dividend: At the end of the season, the farmer has harvested all the mangoes. He knows exactly how much he earned from the entire harvest. After calculating all costs and profits, he distributes the main share of the money to his partners. This is the final dividend—the main payment based on the final, known results.
Key Takeaways for an Investor
- Two Payments are Possible: A company that pays an interim dividend will often also pay a final dividend for the same financial year. The Total Dividend for the year is the sum of both.
- Example: If a company pays an interim dividend of ₹5 per share and a final dividend of ₹10 per share, the total dividend for the year is ₹15 per share.
- Final Dividend is More Formal: Because the final dividend requires shareholder approval, it is considered a more formal and stable commitment.
- Interim is a Confidence Signal: When a company declares an interim dividend, it signals that the board is confident about the company’s current performance and cash flow.
In summary, while both put money in your pocket, the interim dividend is a mid-year advance, and the final dividend is the year-end settlement. Together, they make up your total dividend income from a company for a given year.