Do Not Call
Understand what interim dividends are, how they differ from final dividends, and their implications for shareholders.
Dividends are one of the most common ways companies reward shareholders. While final dividends are declared after a company's annual results, interim dividends are paid during the financial year, often before annual profits are fully known.
An interim dividend is a temporary dividend distributed by a company to shareholders before annual financial statements are finalised.
Declared by the Board of Directors
Typically announced with quarterly or half-yearly results
May or may not be followed by a final dividend
The process of declaring and paying an interim dividend involves several steps. Understanding how this process works can help investors keep track of important dates and ensure they don’t miss out on dividends.
Declaration: The board assesses profits from the ongoing fiscal period.
Record Date: Shareholders on record by this date are eligible.
Payment Date: The interim dividend is credited to investor accounts.
If a company declares an interim dividend of ₹4 per share on January 15, shareholders on record by January 20 would receive the dividend on the payment date, say, January 28.
Below is a comparison between interim and final dividends, highlighting key differences in timing, approval process, and frequency.
Feature |
Interim Dividend |
Final Dividend |
|---|---|---|
Timing |
During the financial year |
After fiscal year-end |
Approval |
Only board approval required |
Requires shareholder approval |
Frequency |
Can occur multiple times |
Typically once annually |
Purpose |
Reward shareholders early |
Reward after full year’s performance |
Companies choose to declare interim dividends for various reasons such as:
Strong financial performance in early quarters
To enhance investor confidence
Cash-rich companies may choose interim payouts as part of a recurring dividend strategy
Interim dividends can have several impacts on shareholders. While they can signal the company’s financial health, they also come with tax implications and potential stock price adjustments. Consider the following before investing:
Positive Signal: Indicates healthy operations
Taxable Income: Dividends are taxed in the hands of shareholders as per individual tax slabs
Price Adjustment: Stock prices may adjust downward post the ex-dividend date
Despite their attractiveness, interim dividends come with certain risks such as:
Not Guaranteed: Interim dividends do not assure final dividends
Cash Flow Impact: Excessive payouts might affect a firm’s operational liquidity
Volatility: Dividend expectations can influence short-term stock price volatility
Understanding these risks, such as liquidity impact and the potential for dividend cuts, helps investors make more informed decisions.
Interim dividends serve as early rewards for investors and reflect a company’s confidence in its financial health. While attractive, investors should analyse whether such payouts align with the company’s long-term financial strategy and personal tax implications.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
The ex-dividend date is the cutoff date by which investors must purchase the stock to be eligible for the interim dividend. If you buy the stock on or after the ex-dividend date, you will not receive the upcoming dividend, as the previous shareholder is entitled to it.
Yes, unlike final dividends, interim dividends are optional and are declared only if the company's board deems it financially viable. Companies may decide not to declare interim dividends due to cash flow constraints or other strategic financial reasons.
Yes, interim dividends are quite common, especially among large, cash-rich companies in sectors such as FMCG, IT, and pharmaceuticals. These companies often distribute interim dividends as part of their regular payout policy to reward shareholders before the year-end.
Yes, TDS (Tax Deducted at Source) is applicable on interim dividends for resident investors. If the total dividend income exceeds ₹5,000 in a financial year, TDS is deducted at 10%. This ensures tax compliance at the source itself.
Interim dividends are taxed as part of your total income and are subject to applicable income tax slab rates for individuals. The TDS deducted will be adjusted against your final tax liability when filing your income tax return.
.webp "Download"){kind=icon}
