Final Dividend

What is the final dividend?

The final dividend is the portion of a company’s profits that is distributed to shareholders at the end of a financial year, after the company’s financial statements have been audited and approved by the board of directors. Unlike interim dividends, which are paid during the year, the final dividend is declared at the annual general meeting (AGM) and is subject to shareholder approval. It represents a company’s confirmed profitability and willingness to share a portion of its earnings. The final dividend provides investors with a clear signal of the company’s financial performance and stability. It is usually higher than interim dividends and is paid only if the company has surplus reserves after accounting for expenses, taxes, and reinvestment requirements. Final dividends are a key aspect of income investing, particularly for long-term shareholders seeking good returns.

Final dividend example

Consider a company that has concluded its financial year on 31 March and reports a net profit of Rs.100 crore. The board of directors recommends a final dividend of Rs.5 per share for shareholders, subject to approval at the annual general meeting. Suppose the company has 10 crore shares outstanding. The total payout for the final dividend would then be Rs.50 crore. Once approved, the dividend is credited to shareholders' bank accounts or paid via cheque within a specified timeline. This distribution reflects the company’s financial health and shareholder-friendly approach. Such examples are commonly seen with large-cap companies like ITC Ltd, TCS, or Infosys, which often declare consistent final dividends as part of their earnings distribution policy.

How to calculate final dividend?

The final dividend is calculated by multiplying the dividend per share by the total number of outstanding shares. The board proposes a specific rate or amount per share based on the company’s post-tax profit, free reserves, and reinvestment needs.
Formula: Final Dividend = Dividend Per Share × Number of Outstanding Shares.
For example, if a company declares a final dividend of Rs.4 per share and it has 50 lakh shares outstanding, the total final dividend will be Rs.2 crore. The company must ensure that this payout complies with applicable regulations and is adequately supported by its financial statements and reserves. This calculation helps determine how much cash the company will distribute and allows shareholders to estimate their earnings from dividend income.

Interim vs final dividend

The interim dividend is paid during the financial year, usually after quarterly or half-yearly results, whereas the final dividend is declared after the end of the financial year and approved at the AGM. Interim dividends are based on unaudited results and require only board approval, while final dividends need shareholder consent.
Final dividends are often larger in value and reflect the company’s complete annual performance. Interim dividends provide flexibility and are sometimes used to maintain investor confidence. In contrast, final dividends signal sustained profitability and financial prudence. Both types are important, but the final dividend is usually seen as more reliable and indicative of long-term stability. Together, they form the company’s total dividend payout for the year.

Characteristics of final dividend

The final dividend has several distinguishing characteristics. It is declared once at the end of the financial year and is based on audited financial statements. It is proposed by the board of directors and requires approval from shareholders at the annual general meeting. The final dividend is usually higher than any interim dividends declared during the year.
It reflects the company’s overall financial performance and surplus cash available after accounting for operational needs and future investments. The amount is fixed and non-reversible once approved. Payment is typically made within 30 to 45 days after declaration. The final dividend adds credibility to a company’s governance and investor relations, particularly among long-term shareholders who prioritise income stability and capital appreciation.

Final dividend vs liquidating dividend

A final dividend is paid from a company’s current or retained earnings after a financial year’s performance has been evaluated. It signals healthy profitability and ongoing business operations. In contrast, a liquidating dividend is paid when a company is closing down or selling a substantial part of its assets, distributing proceeds to shareholders.
While a final dividend is a sign of financial strength, a liquidating dividend indicates the cessation of business. The former is usually a recurring annual event, while the latter is a one-time occurrence tied to winding-up activities. Shareholders receiving a liquidating dividend may also be entitled to capital gains, depending on asset realisation. Final dividends are part of routine corporate governance, while liquidating dividends are part of corporate exit or restructuring events.

Who will declare a final dividend?

The final dividend is declared by the company’s board of directors, but it becomes official only after receiving approval from shareholders at the annual general meeting. The board analyses the company’s annual financial statements and proposes a dividend amount based on profitability, retained earnings, and future capital requirements.
Once proposed, the shareholders vote on the resolution during the AGM. If approved, the company proceeds with disbursing the final dividend. Regulatory compliance, tax considerations, and cash flow status also influence this decision. In listed companies, announcements regarding final dividends are made through stock exchange filings to ensure transparency and timely communication with investors.

When is the final dividend paid?

The final dividend is typically paid shortly after the annual general meeting, once shareholders approve the dividend proposal. In most cases, companies disburse the dividend within 30 to 45 days from the date of declaration. The record date is set to identify eligible shareholders entitled to receive the dividend.
Payment is made via electronic credit to bank accounts linked with demat accounts or through physical cheques, depending on shareholder preferences. Investors must ensure they hold shares on the record date to receive the payout. The timing of the final dividend is subject to regulatory norms and is disclosed through official announcements made by the company.

Conclusion

The final dividend represents a company’s commitment to rewarding shareholders based on its annual financial performance. Declared at the end of the financial year and approved at the AGM, it serves as a clear indicator of financial stability, profitability, and governance transparency. Unlike interim dividends, the final dividend is based on audited results and provides a full-year earnings perspective.
Investors often consider final dividends as a key metric when assessing dividend-paying stocks. While not guaranteed, a consistent history of final dividend payments reflects management’s confidence in the business outlook. Understanding its calculation, declaration process, and payment timeline helps shareholders anticipate income and make informed investment decisions.