By Aniket Bose. Edited by Arjun Chandrasekar.
What is a Dividend?
A dividend is the distribution of some of a company’s earnings to its shareholders, which is determined by the company’s board of directors. The common shareholders of companies that pay dividends are typically eligible, as long as they own the stock/share before the ex-dividend date. Dividends are usually paid in the form of cash but they can also be subjected to additional shares in the company.
An interim dividend is a dividend payment that is made before a company’s annual general meeting (AGM) and the release of final financial statements. This form of dividends typically accounts for the company’s interim financial statements. The interim dividend is issued more and more commonly in the United Kingdom, where the dividends are paid semi-annually. The interim dividend is typically the smaller of the two payments made to shareholders. The company’s Board of Directors is responsible for declaring an interim dividend, but whether it will be approved or not is up to the shareholders. Interim dividends are paid in the middle of a fiscal year in the United Kingdom and every three months in the United States.
Dividend payments allow shareholders to benefit from earnings growth through both interim and final dividends, as well as share price appreciation. Interim dividend payments can be paid out in cash or more stock of the company. An example of an interim dividend was on February 13, 2019, where Plato Income Maximiser Ltd. announced that it would offer its shareholders interim dividend payments. The shareholders on Thursday, February 28th would be given a 0.005 per share on that certain day. The company’s director notes that the company understands retirees need to supplement their government pension payments. This necessity is why Plato Income Maximiser Ltd.’s investment strategy is to prioritize regular and sustainable dividend payments.
A final dividend is a form of a dividend payment that is declared during a company’s AGM for a given fiscal year. This dividend payment amount is calculated after all year-end financial statements are recorded and then the directors are informed about the company’s profitability and financial status. Final dividends are different from interim dividends as they are made before a company’s financial statements are known, audited, and released. Final dividends are also more common in the United Kingdom like the interim dividend and it is usually the largest payout by a company for a given year. They also tend to pay more compared to interim dividends offered by a company at any time during a year.
A final dividend can be a set amount of money that is paid quarterly, semiannually, or yearly. It is the percentage of earnings that is paid out after the company pays for its capital expenditures and working capital. The policy for the final dividend selected is solely dependent on the discretion of the company’s board of directors. Dividend payments allow shareholders to receive income and benefit from earnings growth. An example of a final dividend is, suppose you own 500 shares of Tesla, and Tesla pays out $1.50 in dividends every year for their shareholders, you as a shareholder will receive $750 in dividend income every year. If Tesla decides to double their dividend to $3 per share, investors and shareholders will then receive $1,500 in dividend payments every year. Final dividends are announced and usually paid out on an annual basis along with earnings.