Learn about what is Interim Dividend | Motilal Oswal

Hi,
Dividend is a method by which the company rewards its shareholders by declaring it either annually, or interim, that is, in between the Financial year. Annual dividends are declared annually during the annual general meeting when the company declares the financial results for a particular year.
Whereas any dividend declared during the year, during declaring quarterly or semi-annual financial results, is referred to as the interim dividend.
Dividends are a very important parameter in viewing the company for investment purpose.
Risk averse investors view dividend paying companies as more attractive for steady generation of income apart from stock price appreciation.
Investors get more attracted to companies declaring more interim and final dividend.
Steady and consistent dividend declarations are viewed as a positive sign for the company.
Regular Dividends are also a signal towards good future prospect of the company as they reverberate good cash flow generation by the company.
Interim dividends are usually declared during the declaration of interim financial statements i.e. quarterly or semi-annually financial statement as the case may be.
Interim dividends are generally a smaller number as compared to the final dividend. The interim dividend declaration generally requires a provision in the articles of association for its declaration. The interim dividend requires an approval of the shareholders for its declaration.
Interim dividends are generally declared due to the following reasons-
The company might have a policy of declaring more than one dividend i.e. more than the final dividend usually declared.
The company may have some undistributed profits brought forward from previous years.
Also the company might expect the annual earnings to be better and hence declares interim dividends.
Interim dividend has various advantages, but it is also coupled with disadvantages like-
The retained earnings of the company decreases when it declares dividend which may have an adverse impact on the company’s expansion or acquisition plans or unforeseen contingencies.
It may lose investors if it changes its dividend policy or pay a smaller amount of dividend as compared to previous years.
The growth of the company may be limited if it pays dividends over a stable period of time.
So, we have seen that dividends are a common phenomenon to reward the shareholders by the company. Moreover, final dividend is common which is declared annually, but some companies also opt for interim dividend, depending upon its undistributed profits and optimism about the company’s future earnings growth. This is also used by company as a method to woo investors as an attractive destination for investment. Hence, interim dividend is good for a company if it’s able to sustain and consistently pay it.
Thank you for watching the video.

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