What is Interim Dividend?

Kolkata: The raison d'être of any company is to make profits. And one of the major end uses of profits of any company is to reward its shareholders. One of the major ways of rewarding a company's shareholder is to pay dividend, which essentially consists of a payout of a part of the profit of the company to its shareholders, who are the owners of the company. Dividends can be paid in different forms, the most common of which are cash or additional stocks.

An interim dividend is a payment of dividend that is done during the course of a financial year and can be done in a quarter of six months. But the final dividend is paid only after the company's annual accounts are audited. Interim dividend is distributed from a company's profits that were recorded up to that particular point of time in a financial year.

It is easy to understand that that an interim dividend is one that is made before a company's AGM (annual general meeting). It is also done before the finalisation of its complete financial statement for the year and, therefore, the word acronym. Normally, the interim financial results of the corporation are presented along with it when an interim dividend is declared. Out of interim and final dividend payouts made to the shareholders, the interim dividend is generally the lesser of the two.

An interim dividend means a dividend paid on a recurring basis before the publishing of the financial statements for the entire fiscal period. Obviously, interim dividends are less in amount from dividends that are paid out at the end of a financial year. An interim dividend is usually paid at the end of finalisation of quarterly accounts. Experts point out that interim dividends can include bonuses given via stock options or new shares issued by companies. They also explain that this happens since a company doesn't keep all it cash reserves in assets which are convertible such as stocks listed on the stock market.

Interim dividends can also be paid from retained earnings and retained earnings could mean profits of a preceding financial years. Usually interim dividend is not paid from a current years' profits. The reason: the current year's profit might not be fully realised when the interim dividend is decided upon. Often analysts consider the decision by a company to pay interim dividend as an indicator of whether the full-year earnings will reach their estimates.

Interim dividends are of two types -- cash and shares. Cash dividend consists of cash credited to the accounts of shareholders. They don't reduce the value of the equity shares owned by existing stockholders. For example is a 10% interim dividend is declared, a shareholder will receive Rs 10 for every Rs 100 held in the stocks of the company. But stock dividend opens up a whole new possibility.

A stock dividend consists in a company making a payout to shareholders in the form of handing out additional shares of the company's stock, and not cash. A company opts for stock dividends when it wants to retain cash reserves and reinvest profits in the business of the company. In a way, it also symbolizes confidence in the future of the company. A stock dividend results in a rise in the number of shares an investor holds. A very important point to remember is that a stock dividends are not taxed. The taxes become applicable when a shareholder sells the shares and pockets gains.

The dividend policy of a company is determined by the objectives and intentions of the management of the company. Interim dividends go a long way in building the trust of a company's shareholders. Any dividend, interim or final, is decided by the board of directors of a company at any time in a financial year. firm, which may declare interim dividends at any time of a financial year. The money from the profit of the preceding year as well as from that year's business is utilised to pay interim dividend.