# What Is an Interim Dividend? Eligibility and How It Works

![Interim Dividend: The distribution of earnings to shareholders before a company's annual general meeting and the release of final financial statements.](https://www.investopedia.com/thmb/I2y4IdA-Eq30ZPuTR0r8asxKATg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/interimdividend.asp-final-0decdffb1a78430eb7ccc3855bfd0f41.png)

*— Investopedia / Mira Norian*

## What Is an Interim Dividend?

An interim dividend is a payment made by a company before its [annual general meeting](https://www.investopedia.com/terms/a/agm.asp) and the release of final [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp). Declared by the board of directors, interim dividends are paid from retained earnings and often accompany the company's interim financial statements. This early dividend distribution allows shareholders to receive income before the conclusion of the financial year, usually in the United Kingdom and other regions where dividends are paid semi-annually.

### Key Takeaways

*   An interim dividend is a payment made to shareholders before the annual general meeting and the release of final financial statements.
*   Interim dividends are common in the U.K., where companies often pay dividends semi-annually, and are usually smaller than final dividends.
*   The Board of Directors declares an interim dividend, but shareholders must approve it.
*   Interim dividends are paid from retained earnings, whereas final dividends are paid from current earnings.
*   Both interim and final dividends can be distributed in cash or stock.  
    

## How Interim Dividends Work

Individuals invest in companies through [bonds](https://www.investopedia.com/terms/b/bond.asp) or stocks. Bonds pay a set rate of interest, and investors have seniority over shareholders in the case of bankruptcy, but investors do not benefit from share price appreciation. Stocks do not pay interest, but some do pay dividends. Dividend payments allow shareholders to benefit from earnings growth through both interim and final dividends as well as share price appreciation. Directors declare an interim dividend, but it is subject to shareholder approval. By contrast, a normal dividend, also called a final dividend, is voted on and approved at the annual general meeting once earnings are known. Both interim and final dividends can be paid out in cash and stock.

> **Important**
>
> The issuing of an interim dividend is a more common practice in the United Kingdom, where dividends are often paid to shareholders on a semi-annual basis.

## Comparing Final and Interim Dividends

Dividends are paid per share. If you own 100 shares and the company pays $1 per share yearly, you earn $100 annually. If company A doubles its dividend, the company will pay out $2 per share, and investors will receive $200 annually. Final dividends are announced and paid out on an annual basis along with earnings. Final dividends are announced after earnings are determined, but companies pay out interim dividends from retained earnings, not current earnings.

[Retained earnings](https://www.investopedia.com/terms/r/retainedearnings.asp) can also be thought of as undistributed profits. Companies typically pay these dividends on a quarterly or six-month basis before the end of the year. Interim dividends are paid every six months in the United Kingdom and every three months in the United States. Companies declare and distribute an interim dividend during an exceptional earnings season or when legislation makes it more advantageous to do so.

A final or regular dividend can be a set amount that is paid every quarter, six months or year. It can be a percentage of net income or earnings. It can also be paid out of the earnings left over after the company pays for [capital expenditures](https://www.investopedia.com/terms/c/capitalexpenditure.asp) (CapEx) and working capital. The dividend policy or strategy used is dependent on management's goals and intentions for shareholders. Interim dividends can follow the same strategy as final dividends, but since interim dividends are paid out before the end of the fiscal year, the financial statements that accompany interim dividends are unaudited.

> **Fast Fact**
>
> If both an interim and final dividend is handed out in the same fiscal year, the interim dividend is typically the smaller of the two.

## An Example of Interim Dividends in Action

On Feb. 13, 2019, Plato Income Maximiser Ltd (ASX: PL8) [announced an interim dividend](https://www.plato.com.au/media-release-plato-income-maximiser-limited-asxpl8-announces-11-increase-in-monthly-dividends/). Shareholders of record on Thursday, Feb. 28th would be given a dividend of 0.005 per share on that day. The firm's director notes that the firm understands retirees need to supplement government pensions. This need is why the firm's "investment strategy prioritizes regular and sustainable dividend payments."

## The Bottom Line

Interim dividends provide shareholders with income before a company's annual general meeting and the release of final financial statements. These dividends are generally smaller and often drawn from retained earnings rather than current earnings.

Interim dividends are common in the United Kingdom and may be declared in response to advantageous financial conditions or specific shareholder needs. Understanding the nature of interim dividends helps investors make informed decisions about their investments and dividend expectations.