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An interim dividend is a partial dividend payment that is issued to shareholders at the discretion of a company’s board of directors. This type of dividend is often extended after the interim or mid-year auditing of the company’s accounting records takes place. Directors typically assess the progress of the business during the first half of the year and issue a somewhat conservative partial dividend based on their expectations of how the company will perform for the remainder of the business year. In most instances, an interim dividend is less than the final dividend that is issued once the final accounting for the business year is completed and accepted.
The issuance of an interim dividend is common in a number of countries around the world. Shareholders with investments in companies based in the United Kingdom often receive this type of partial dividend payment shortly after the second quarter of the business year is completed and the financial accounting has taken place. In other nations, companies may or may not provide mid-year dividend payments to shareholders, depending on governmental trading regulations that may apply, and the provisions found in the companies' articles of incorporation that pertain to the issuance of stock and stock dividends.
In nations where an interim dividend is relatively common, directors typically assess the outcome of the company’s finances during the first half of the year, using data that was collected during the mid-year audit. This information is considered along with the projected performance of the corporation for the remainder of the business year. At that point, the directors will determine what they feel is an equitable interim dividend amount for distribution.
It is important to note that the process of determining the amount of an interim dividend is not based solely on the most recent performance of the business. Company officers rarely assume that performance levels for the second half of the year will equal the levels achieved during the first half. More often, directors will assume that the remaining two quarters of the year could possibly generate lower returns, and allow for that possibility when calculating the amount of the interim dividend. This means that directors may conservatively extend a mid-year dividend that amounts to thirty or forty percent of the dividend that is anticipated to come due after the financial year is closed out. Doing so helps to insulate the company from potential downturns in revenue or other events that could negatively impact the return on the issued shares.