What is a Final Dividend?

In simple words, the Final Dividend is the dividend announced by the Company after preparing the final accounts. It is usually announced during the Annual General Meeting of the Company.

  • The final Dividend is generally more significant than the interim dividend. It is because the Company tends to be a little conservative during the financial year until it gets the annual accounts, i.e., revenuesRevenuesRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more and expenditures for the year.After the Company knows its profits for the financial year, it chooses to retain some portion for future business needs. At the same time, the remaining is distributed amongst the shareholders as the final dividend.

Example of Final Dividend

An investor holds 100 shares of a Company ABC, which has announced a final dividend of $ 3.5. The investor will receive $ 350 as the year-end dividend on his investment.

Now, the Company has doubled the dividend for the next year, i.e., it is paying $ 7 per share. Thus, the investor will receive $ 700 as the year-end dividend on his 100 shares held in the Company.

Key Points

  • The Board of the Company decides it and should be aligned with the Company’s dividend policy.It is usually a cash dividendCash DividendCash dividend is that portion of profit which is declared by the board of directors to be paid as dividends to the shareholders of the company in return to their investments done in the company. Such a dividend payment liability is then discharged by paying cash or through bank transfer.read more and not a stock dividend Stock DividendA stock dividend refers to bonus shares paid to shareholders instead of cash. Companies resort to such dividends when there is a cash crunch. Shareholders are allotted a certain percentage of shareholding.read more. However, the Company may choose to pay cash and stock dividend or only stock dividend.It is announced by the Board and voted by the shareholders during the Annual General Meeting of the Company.Approval of such a dividend is considered an ordinary shareholder resolution and an ordinary business.It is announced after the company’s financial statementsThe Financial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more are approved and its financial position and profits are ascertained.Once approved, this dividend is the Company’s obligation, and the payment decision cannot be reversed.These dividend payments do not require a special provision in the company’s articles of associationArticles Of AssociationArticles of association is a legally binding document that states the corporate rules, regulations, and purpose. It serves as a user’s guide for executing the organizational tasks, directors’ appointment and recording the financial information.read more.It is not binding on the Company to announce the final dividend. Although dividend policyDividend PolicyDividend policy is the policy that the company adopts for paying out the dividends to the company’s shareholders, which includes the percentage of the amount at which the dividend is to be paid out to the stockholders and how frequent the company pays the dividend amount.read more may include some fixed payment each year, this dividend is announced on the will of the Board of the Company after reviewing the financial position.If the Company has not made any profits in a financial year, it may choose not to pay any dividends, or some dividends may be paid out of the free reserves. The government laws on such payment from free reserves for loss-making Companies may differ from country to country.

Final Dividend vs. Interim Dividend

Although final and interim dividends are paid to the investors as a return on their investment, they have some key differences. So let us look at the differences between the final vs. interim dividend.

  • The interim dividend is announced and paid in the middle of the financial year. In contrast, the final dividend is paid after the completion of the financial year.The interim dividend is declared before the finalization of the accounts. In comparison, the final dividend is paid after the finalization of the accounts.An interim dividend can be canceled with the shareholder’s consent. Still, the year-end dividend, once approved, cannot be canceled, and it becomes an obligation of the Company to pay a year-end dividend.The interim dividend is usually lesser than the year-end dividend.An interim dividend requires a provision in the Company’s articles of association; however, no such provision is necessary for a year-end dividend.

Final dividends are also called year-end dividends. The term “final” should not be confused with the final dividend paid by the Company, and it ceases to exist. Such a dividend is called a liquidating dividend. A liquidating dividend is a type of payment made by the Company when it closes its operations and pays the shareholders any amount/capital available after selling off the assets and settling its debts/other liabilities. The liquidating dividendsLiquidating DividendsWhen a business is completely closed, the shareholders will get a residual payment in the form of cash or other assets after all creditors and lenders obligations have been paid. These dividends are usually paid when management believes the business is no longer a going concern.read more are paid from the company’s capital base, whereas the year-end dividend is paid from the profits earned from the operations.

Conclusion

The dividend is the return the Company provides to the shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company’s total shares.read more from the profits earned during the financial year. The Company may announce a dividend during the part of the year called the interim dividend, or it may announce the dividend at the end of the year once it has ascertained the profits and financial position. After the annual accounts have been prepared, the declaration of the dividend is called the final or year-end dividend. Year-end dividends are paid yearly and are generally higher than interim dividends given by the Company.

Final Dividend Video

This article has been a guide to what is Final Dividend. Here we discuss key features of such a year-end dividend along with examples. Also, we discuss the differences between Interim Dividend vs. Final Dividend. You can learn more about Shareholder’s Equity from the following articles –

  • Types of Dividend PoliciesDate of Record for DividendsEx-Dividend Date for StocksCapital Gains vs Dividends