What is an Interim Dividend, What Does It Mean? 2022

what is an interim dividend

What Does It Mean by Interim Dividend Is A Temporary Dividend?

Interim Dividend Details: Lately, content about investment is very common on social media. If you are one of those who study investing or even become an investor, you are familiar with the term dividend, both final dividends, and interim dividends.

Interim dividends are temporary dividends, while final dividends are dividends that have been decided. However, before discussing the more deeply about interim dividends, it helps you understand the definition of dividends themselves. Come on, let’s discuss more!

What is a Dividend?

The dividend is a term in stock investment that refers to a company’s net income.

In KBBI, dividends are defined as part of the company’s profits, the amount of which is determined by the board of directors and approved by the shareholders’ meeting to be distributed to shareholders.

So, it can be concluded that dividends are net income distributed to investors or shareholders over a certain period.

According to the above definition, shareholders are entitled to receive dividends after approval or the results of the general meeting of shareholders (GMS).

Generally, dividends are distributed once a year. Even so, there is still the possibility that dividends will not be distributed within one year.

For example, when the company suffers a loss, of course, there will be no dividends distributed to shareholders.

In such a situation, the net profit earned by the company in the current year will be retained earnings until the company’s financial condition improves.

On the other hand, when the company makes a profit, the shareholders are likely to receive dividends. The mechanism for receiving dividends is divided into two, namely interim dividends and final dividends.

Also Read: Profitable Frozen Food Business Opportunity in 2022

What is an Interim Dividend?

Interim dividends are temporary dividends paid to shareholders before the company’s annual profit is determined at the GMS.

During the current year, for example, dividends are paid quarterly. This dividend is not a final dividend based on the decision of the GMS but only refers to the decision of the board of directors.

Final Dividend

In contrast to interim dividends, final dividends are net profits or company profits distributed to shareholders after being decided by the GMS in a certain financial year.

So, the final dividend is given once a year, not periodically like the interim dividend.

Know the Types of Dividends
In addition to being differentiated based on the timing of dividends and the basis for making decisions, dividends are also divided into several types.

Of course, you need to know the types of dividends if you want to have an in-depth understanding of the benefits of this investment. Below is an explanation regarding the types of dividends based on the GMS.

1. Cash Dividends
Cash dividends are money paid to shareholders as part of the company’s current income or accumulated profits. So, this type of dividend is paid directly in the form of money, not shares or other forms of valuable assets.

Cash dividends are a common method used by companies to return capital to shareholders in the form of periodic cash payments, generally annually.

Although most companies pay cash dividends regularly, there are also cash dividends that are given to shareholders after certain non-recurring events.

Call it, after the settlement of a legal case or borrowing money for the distribution of large amounts of cash.

2. Stock Dividends
In contrast to cash dividends, stock dividends are dividend payments to investors in the form of shares.

The advantage of paying stock dividends is that the company can still provide rewards to shareholders, without reducing the company’s cash. However, this method can lead to dilution of earnings per share.

For shareholders, this dividend distribution is beneficial because of the share assets in the company increase. In addition, dividends that are still in the form of shares are also free from tax obligations.

3. Property Dividend
Property dividends are an alternative to cash dividends or stock dividends. Companies provide dividends in the form of goods, such as houses or other investment assets.

Even though it is considered a non-monetary dividend, property dividends still have a monetary value. The property given to the shareholders remains the cash equivalent or cash equivalent.

4. Debt Promised Dividend
The last type of dividend is the debt dividend. A debt dividend is the distribution of dividends paid by the company in the form of a script.

The script will serve as a reference for future dividend payments. In other words, the company promises to pay dividends or has short-term debt to shareholders related to dividends that should be received.

what is an interim dividend
what is an interim dividend vs a Final Dividend

Difference Between Interim and Cash Dividend

Now you already know the meaning of dividends, final dividends, and interim dividends. You have also listened to an explanation of the types of dividends, ranging from cash dividends to debt covenant dividends.

Well, not a few are also asking about the difference between interim and cash dividends. This is because, in terms of time, cash dividends are usually final dividends or are given annually to investors.

At least, five points are the difference between interim and cash dividends. Let’s see below!

  • Cash dividends or final dividends are paid after the accounting year or period ends, while interim dividends are paid earlier.
  • The distribution of final dividends cannot be canceled, but the distribution of interim dividends can be canceled according to company policy.
  • The cash dividend rate or final dividend is usually higher than the interim dividend.
  • Interim dividends must be expressly approved in the company’s Articles of Association. However, these special conditions do not apply to final dividends or cash dividends.
  • Cash dividends or final dividends are declared at the company’s annual general meeting.

Interim Dividend Distribution
As previously discussed, interim dividend payments are made before the GMS and before the release of the annual financial statements. Dividends paid monthly or quarterly are usually accompanied by interim financial statements.

The distribution of interim dividends is decided by the company’s directors, but still requires the approval of shareholders.

Before there is an interim dividend distribution, of course, the calculation is carried out first. If the final and interim dividends are distributed in the same fiscal year, the interim dividend is generally calculated as less.

The company’s directors choose to maintain the interim dividend at a low rate so as not to interfere with the company’s operational capabilities in anticipation of the annual yield not being as good as expected.

The interim dividend payments usually come from retained earnings which include profits from previous years. So, the source of profit is not the current year’s profit because the exact amount of the company’s profit is not known when the interim dividend is distributed.

Also Read: What is Capital Budgeting? Definition, Benefits, Methods & Examples

Conclusion
In its operations, a company can certainly experience losses or profits. When the company makes a profit or profit, there is usually a share of the profit that is distributed to shareholders. This portion of the profit is known as dividends.

Based on the mechanism and timing of distribution, dividends can be given in the form of final dividends and interim dividends.

As seen from its name, interim dividends are temporary dividends paid to shareholders before the company’s annual profit is known and determined at the annual meeting of shareholders (GMS).

So, the decision to give is not based on the GMS but is the policy of the company’s directors. Therefore, the board of directors may also cancel the provision of interim dividends at any time.

The possibility of cancellation is one of the striking differences between interim and cash dividends because cash or final dividends cannot be canceled.

The interim dividend distribution itself is quite varied in terms of time or frequency. Some companies provide interim dividends every month, every quarter, and some companies distribute them every semester or every six months.

From a calculation point of view, the interim dividend rate is usually kept lower in anticipation of the current year’s profits do not match expectations.

Regardless of the mechanism, frequency, and type of dividends that will be given by the company, the first point that needs to be pursued is that the company makes a profit.

For this reason, the company’s operations need to run optimally. If you want to ensure that your company’s operations run efficiently, consider using a full-featured POS application!

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