A final dividend is the dividend declared by a corporation’s board of directors after it has taken into account the company’s full-year financial performance. This dividend is paid to shareholders after the fiscal year-end and is usually larger than the interim dividends that a company might declare and pay during its fiscal year.
The final dividend is typically announced when the company releases its annual earnings report, and it must be approved by shareholders at the annual general meeting (AGM) before it can be paid.
The process generally works like this:
- The board of directors reviews the company’s audited financial statements for the year and determines an appropriate amount of earnings to distribute as dividends, taking into consideration the company’s profitability, future investment needs, cash flows, and dividend policy.
- The proposed final dividend is then put to a vote at the company’s AGM.
- If the shareholders approve the final dividend, it is then distributed to all shareholders of record on a specific date (the “record date”).
The sum of the interim dividends and the final dividend make up the total dividend distribution for the fiscal year.
Example of a Final Dividend
Let’s say we have a company called “Healthy Snacks Inc.” that follows a policy of paying both interim and final dividends.
Here’s how the process might unfold:
1. Interim Dividend:
- In August 2023, midway through their fiscal year, Healthy Snacks Inc. reports strong half-year profits. The board of directors declares an interim dividend of $0.10 per share, which is paid out to shareholders shortly afterwards.
2. Final Dividend:
- In February 2024, Healthy Snacks Inc. releases its full-year financial results. Profits have remained strong, and the board proposes a final dividend of $0.20 per share.
- This proposed final dividend is announced to the public and is also included in the agenda for the upcoming Annual General Meeting (AGM).
3. Approval and Payment of Final Dividend:
- In April 2024, at the AGM, the shareholders approve the payment of the final dividend.
- The company sets a record date in May, and all shareholders who own the stock on that date will receive the final dividend. The dividend is then distributed to shareholders.
So, in this example, Healthy Snacks Inc.’s total dividend for the fiscal year would be $0.30 per share ($0.10 interim dividend + $0.20 final dividend), distributed in two payments.
Please note that the timeline and dividend amounts in this example are completely hypothetical and used purely for illustrative purposes. The actual process may vary depending on company policies, local regulations, and other factors.