Interim Dividend vs Final Dividend: Key Differences Explained

One of the biggest attractions of investing in the stock market is the ability to receive dividends. Investors receive reports whenever dividends are available, which usually contain the following terms. Investors may be confused as the report contains Final Dividend and Interim Dividend. What is the difference? Which dividend is more important? What is the potential impact on investors? This blog will discuss the impact of dividends on Interim Dividend vs Final Dividend, the potential impact on investors and taxation.

What Is a Dividend?

Dividends are a portion of the profit of a corporation paid to its investors in return for their investment and loyalty.

Dividends can be awarded in the form of:

• Cash

• Stock (rarely used)

• In India, dividends are awarded in cash.

Types of Dividends in India

Prior to the aforementioned division, let us explain the two main types:

1. Interim Dividend

2. Final Dividend

In both cases, the dividends are paid out of the profits of the company; the only difference is the timing and the context of the approval.

Interim Dividend Meaning

The interim dividend meaning is a dividend declared and paid by a company before the end of the financial year, usually based on interim or half-yearly profits.

Key Points of Interim Dividend

• Declared during the financial year

• Based on partial or estimated profits

• Approved by the Board of Directors

• Does not require shareholder approval in the AGM

• Can be declared multiple times in a year

Companies announce interim dividends when they have:

• Strong cash flows

• Confidence in profits

• Excess surplus funds

 

 

Final Dividend Meaning

The final dividend meaning is a dividend declared after the end of the financial year, based on full-year audited profits, and approved by shareholders at the AGM.

Key Points of Final Dividend

• Declared after annual results

• Based on audited financials

• Approved by shareholders

• Usually paid once a year

• Considered more “official” and predictable

Final dividend reflects the company’s overall yearly performance.

Interim Dividend vs Final Dividend: Core Difference

Let’s understand the interim vs final dividend difference clearly.

Basis	Interim Dividend	Final Dividend
Timing	During the financial year	After the financial year
Profit basis	Interim / estimated profits	Full-year audited profits
Approval	Board of Directors	Shareholders at AGM
Frequency	Can be multiple times	Usually once
Predictability	Less predictable	More predictable
Cash flow signal	Strong liquidity	Stable long-term performance

This table clarifies interim dividends and final dividends.

Why do Companies Announce Interim Dividends?

Reasons include:

1. Having a Strong Cash Position

Companies can reward their shareholders and distribute their profits.

2. Growing Profit Stream

The company's management trusts in its ability to generate future profits.

3. Message to the Market

Interim dividends can signal to the market that the company values its shareholders.

4. Improving Market Mood

Companies can declare and distribute interim dividends to encourage shareholders.

Why do Companies Announce Final Dividends?

Final dividends can be given for the following reasons:

• They complete a company’s yearly profit.

• There is a time expectation from shareholders to receive a payment.

• They are part of a company’s consistent policies.

• They demonstrate a company’s financial health.

• Final dividends are usually more certain.

Interim Dividend Example

Let’s understand with a clear interim dividend example.

Example:

Company ABC has a financial year that ends in March.

Company ABC reports strong profits for the first half of the year in November.

The board announces an interim dividend of 5 rupees a share.

Shareholders receive the payment in December.

Later, the company may also declare a final dividend.

This is a textbook interim dividend example.

Final Dividend Example

Example:

Company XYZ closes its books in March.

Annual profits are audited.

In May, the board recommends a final dividend of ₹8 per share.

Shareholders approve it in the AGM.

The dividend is paid in July.

This is a textbook example of a final dividend.

Can a Company Pay Both Interim and Final Dividends? 

Yes, for sure. Numerous companies pay one or more interim dividends plus a final dividend

For example:

Interim dividend: ₹4

Final dividend: ₹6

Total annual dividend = ₹10 per share

Which is Better for the Investors: Interim or Final Dividend? 

A more direct response would be that it would depend on perspective.

Interim Dividend Benefits

• Present Cashflow.

• Indicative of strong liquidity.

• Positive signal for the short term.

Final Dividend Benefits

• More dependable

• Based on audited profits

• Easier to ascertain plans for income.

• Long-term investors usually prefer stable final dividendswhereas income-focused investors benefit more from interim dividend payouts.

Impact on Share Price

We prefer to discuss the impact on share prices last. Announcing a dividend impacts share prices in different ways.

Results of Dividends

• Dividends provide confidence.

• Can lead to a stock price rally.

Half-Year Dividends

• Higher confidence for indecisive investors

• High confidence in results

• Half-year dividends will lead to price increase over time.

On the ex-dividend date, investors will notice that the price of the stock falls in correlation to the amount of the dividend.

About Record Date and Ex-Dividends

These are of equal importance for both interim and final dividends:

Record Date: This is the date the company checks for eligible stockholders.

Ex-Dividend Date: This is the date by which an investor must purchase shares to be eligible to receive the dividend.

 

 

Taxation of Dividends in India

From a taxation point of view, it is to be noted that:

In India, both interim and final dividends are treated the same. The amount is taxed as per the investor’s income tax bracket. The company does not pay DDT. TDS is applied if the dividend amount goes over a certain limit. In India, there is no tax difference between final dividends and interim dividends.

Final and Interim Dividends in the Eyes of Companies

For dividend policies:

• With final dividends, a company will be financially stable

• Excessive interim dividends can cause liquidity to lower.

• Interim dividends cause a company to closely manage its cash.

• With final dividends, a company can focus on planning for the long run.

In this way, a company will be far more strategic than to use interim dividends.

How Investors Should Interpret Dividend Announcements

Smart investors look at more than the amount of a dividend at declaration.

Also Check

• Dividend payout ratio

• Sustainable profits

• Cash flow strength

• Company debt

• Dividend payout history.

When a dividend, high or low, is paid despite a company posting a profit, it is a warning sign.

Myths Regarding Interim and Final Dividends

Confidence in the company’s future is just because of an interim dividend, normal

• Final dividend is guaranteed every period.

• Final dividend will not be due if an interim dividend was paid.

• All of the above statements represent myths. 

• There is a different need served by each of the two dividends.

Long Term Investors’ Dividend Strategy

• Long-term investors should consider only companies in a niche of consistent dividends.

• Avoid succumbing to high payout dividends

• Maintain a balanced portfolio.

• For dividend earnings, to achieve dividend compounding, don’t spend the dividends.

• A dividend income stream is designed to provide in-dividend investing with a high degree of discipline.

One Line Explaining Final and Interim Dividend

Final dividend is paid to all shareholders after the complete company performance is taken into account in a year, whereas an interim dividend is paid to all shareholders at any time during the year without full performance evaluations.

 

 

Conclusion

Investors who understand the final dividend vs the interim dividend gain immensely. The former two payouts are a signal of strength in a company over the long term and a strength in the company over a shorter period.

Each type of dividend is important and should not be viewed in isolation.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.