Definition
A final dividend is the declared payment of a portion of a company’s profits to its shareholders, as proposed by the directors and approved by shareholders. It’s called the ‘final’ dividend because it’s paid after the company’s financial year-end, once the final earnings are confirmed. The amount is typically higher than the interim dividend, which is paid before the year-end financial results are known.
Key Takeaways
- Final Dividend refers to the portion of a company’s profit, broadly decided by its Board of Directors, to be distributed to shareholders. This happens at the end of the company’s financial year.
- The value of the final dividend is usually higher than interim dividends as it is calculated after the close of the financial year when the company’s net profit is more definite.
- Awareness of a company’s ability to pay regular and stable dividends, like final dividends, is a key indicator of its financial health and stability. It can attract investors seeking regular income in addition to capital appreciation.
Importance
The finance term “Final Dividend” is important as it refers to the final dividend payment declared by a company’s board of directors before the company’s annual general meeting and the publication of its annual earnings.
It essentially represents the final sharing of profits for that year among shareholders.
This number helps investors gauge the company’s profitability and overall financial health, as higher and consistent final dividends may indicate a company is doing well, while reductions may signal financial difficulties.
It is an essential aspect in investment decisions, as many investors look for companies with a consistent and increasing record of dividends, signalling steady returns on their investments.
Explanation
The final dividend serves a significant role in the distribution of a corporation’s profits back to its shareholders. Primarily, it allows the company to share its annual profits with its investors, rewarding them for their investment, and establishing trust and goodwill amongst its stakeholders.
The final dividend is viewed as a sign of corporate health and prosperity, as regular dividend allotments demonstrate financial stability. This distribution of profits can help maintain and even attract new shareholders, contributing to the company’s long-term growth.
Besides, the final dividend indicates the company’s financial robustness to the market at large, apart from just its investors. It’s essentially a public statement about a company’s success and profitability.
Seeing a company consistently provide dividends to its shareholders could be a desirable indicator for potential investors, as it suggests the company is reliably generating profits. Ultimately, the declaration and payment of a final dividend can bring about market recognition, potentially boosting a company’s market performance and enhancing its reputation among investors.
Examples of Final Dividend
Apple Inc: In November 2020, Apple declared a final dividend of $205 per share for its fiscal year ended 26th SeptemberThis came after Apple generated record September quarter revenue of $
7 billion. These final dividends were paid out to shareholders registered before the ex-dividend date.Royal Dutch Shell: In 2015, Royal Dutch Shell announced final dividends of $47 per ordinary share for its financial year. Despite losses they had due to falling oil prices, they still decided to give out a final dividend to show their confidence in their business and to reward the patience of their shareholders.
Unilever: The global consumer goods company, announced in April 2021, a final dividend of4262 euros per share for the financial year ending DecemberThis dividend was ratified at the Annual General Meeting and confirmed the company’s commitment towards sharing its profits with investors.
FAQs on Final Dividend
What is a Final Dividend?
A final dividend is a payment made by a corporation to its shareholders, usually in the form of cash, after the income statement has been prepared and all expenses and costs have been accounted for, right at the end of the fiscal year.
How is a Final Dividend paid out?
Final dividends are paid out per share. So, the amount each shareholder receives is based on the number of shares they own. For example, if a company declares a final dividend of $0.05 per share and you own 1000 shares, you will receive $50 as your final dividend.
When is the Final Dividend declared?
Final Dividend is declared at a company’s Annual General Meeting for the shareholders’ approval, after which it is paid out to shareholders.
What is the difference between Interim and Final Dividend?
The final dividend is decided and announced once the company’s financial health and profitability have been completely evaluated, which is usually at the end of the fiscal year. Interim dividend, on the other hand, is declared and paid before a company’s financial year has ended.
Does every company issue a Final Dividend?
No, not all companies issue a final dividend. It largely depends on the company’s profitability, cash flow situation, and its dividend policy. Some might choose to reinvest profits back into the business instead of distributing them to shareholders.
Related Entrepreneurship Terms
- Dividend Policy
- Retained Earnings
- Declaration Date
- Earnings Per Share (EPS)
- Dividend Yield
