What is Final Dividend?
Final dividend is the amount declared by the board of directors to be payable as dividend to the shareholders of the company after the financial statements are prepared and issued by the company for the relevant financial year and is commonly announced in the annual general meeting of the company.
In simple words, Final Dividend is the dividend announced by the Company after the preparation of the final accounts and usually announced during the Annual General Meeting of the Company.
- Final Dividend is generally more significant than the interim dividend. It is because the Company tends to be 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. 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 while 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 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 holding in the Company.
- The Board of the Company decides it and should be aligned with the dividend policy of the Company.
- 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. and not a stock dividend. However, the Company may choose to pay both 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 as an ordinary shareholder resolution and an ordinary business.
- It is announced after the 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. of the Company are approved, and financial position and profits of the Company are ascertained.
- Once approved, this dividend is the obligation of the Company, and the decision of payment cannot be reversed.
- These dividend payments do not require a special provision in the 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. of the Company.
- 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. may clause in some fixed payment each year, this dividend is announced on the will of the Board of the Company after reviewing the financial position of the Company.
- If the Company has not made any profits in a financial year, it may choose not to pay any dividend, or some dividend may be paid out of the free reserves of the Company. 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 both 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 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.
- Interim dividend requires a provision in the articles of association of the Company; however, no such provision is necessary for a year-end dividend.
Final dividends are also called a year-end dividend. 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 with it 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. are paid from the capital base of the Company, whereas the year-end dividend is paid from the profits earned from the operations of the Company.
The dividend is the return provided by the Company 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. 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 of the Company. Declaration of the dividend after the annual accounts have been prepared is called the final dividend or year-end dividend. Year-end dividends are paid on a yearly basis 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 Shareholders Equity from the following articles –