What Is an Interim Dividend?
Let me explain what an interim dividend is: it's a payment that a company makes to you as a shareholder before its annual general meeting and before releasing the final financial statements. The board of directors declares this dividend, and it's paid out from retained earnings, often alongside the company's interim financial reports. This setup lets you get some income early, before the financial year wraps up, and it's especially common in the United Kingdom and other areas where dividends come semi-annually.
Key Takeaways
- An interim dividend is a payment made to shareholders before the annual general meeting and the release of final financial statements.
- Interim dividends are common in the U.K., where companies often pay dividends semi-annually, and are usually smaller than final dividends.
- The Board of Directors declares an interim dividend, but shareholders must approve it.
- Interim dividends are paid from retained earnings, whereas final dividends are paid from current earnings.
- Both interim and final dividends can be distributed in cash or stock.
How Interim Dividends Work
When you invest in companies, you might choose bonds or stocks. Bonds give you a fixed interest rate, and in bankruptcy, bondholders get priority over shareholders, but you don't gain from rising share prices. Stocks don't pay interest, but some offer dividends, letting you benefit from earnings growth through interim and final dividends, plus any share price increases. The directors declare an interim dividend, but it needs your approval as a shareholder. In contrast, a final dividend gets voted on and approved at the annual general meeting once earnings are clear. You can receive both types in cash or stock.
Here's an important point: issuing interim dividends is more common in the United Kingdom, where companies typically pay shareholders semi-annually.
Comparing Final and Interim Dividends
Dividends are calculated per share. If you own 100 shares and the company pays $1 per share annually, you get $100 a year. If that dividend doubles to $2 per share, your annual payout becomes $200. Final dividends are announced and paid yearly with the earnings report. They're based on determined earnings, but interim dividends come from retained earnings, not current ones.
Think of retained earnings as profits that haven't been distributed yet. Companies pay these interim dividends quarterly or every six months before year-end. In the UK, it's every six months; in the US, often every three months. Companies declare them during strong earnings periods or when laws make it beneficial. A final dividend might be a fixed amount paid quarterly, semi-annually, or yearly, or a percentage of net income or leftover earnings after capital expenditures and working capital. The strategy depends on what management aims for with shareholders. Interim dividends can mirror this, but since they're before fiscal year-end, the accompanying financials are unaudited.
A quick fact: if a company pays both an interim and final dividend in the same year, the interim one is usually the smaller.
An Example of Interim Dividends in Action
Take Plato Income Maximiser Ltd (ASX: PL8) on February 13, 2019—they announced an interim dividend. If you were a shareholder of record on February 28th, you'd get 0.005 per share that day. The director explained that the company knows retirees need extra income beyond government pensions, so their investment strategy focuses on regular, sustainable dividends.
The Bottom Line
Interim dividends give you income as a shareholder before the annual general meeting and final financial statements. They're generally smaller and come from retained earnings, not current earnings. This is common in the UK and can happen due to good financial conditions or specific needs. Knowing about interim dividends helps you make better choices on investments and what to expect from dividends.
Other articles for you
This text explains what loads are in mutual funds, including types like front-end and back-end, and contrasts them with no-load options.
A negative return means an investment or business has lost value, resulting in a financial loss instead of a gain.
The debt-to-equity ratio measures a company's financial leverage by comparing its total liabilities to shareholder equity.
Disinvestment involves organizations or governments selling assets or reducing capital expenditures to optimize resources and maximize ROI.
Exploration and production (E&P) is the initial phase in the oil and gas industry focused on finding and extracting raw hydrocarbons.
Guaranteed stock refers to either a rare type of stock with dividends guaranteed by a third party or a company's always-available inventory supply.
Days Payable Outstanding (DPO) measures the average time a company takes to pay its bills to suppliers.
This text explains non-compete agreements, their functions, components, legal aspects, and the recent FTC ban, including pros, cons, and state variations.
A bare trust is a simple legal structure where beneficiaries have absolute rights to assets and income, commonly used for tax-efficient inheritance in Canada and the UK.
The weighted average credit rating (WACR) measures the overall credit quality and risk of a bond fund by averaging the ratings of its bonds proportionally to their value.