A final dividend is a dividend recommended by the directors of a company to be paid to the shareholders, subject to the shareholders giving approval at the annual general meeting (AGM). It is an appropriation of profits in the profit and loss account and, until paid, is shown as a current liability in the balance sheet. This article delves into the historical context, categories, key events, explanations, formulas, charts, and many more aspects of final dividends.
Historical Context
The concept of dividends dates back to the early days of joint-stock companies. Initially, dividends were distributed irregularly and were often a reflection of the ad-hoc profits of businesses. Over time, more structured forms of dividends, including final dividends, emerged as companies sought to provide regular income to shareholders and reflect stable financial performance.
Types/Categories
- Interim Dividend: Paid before the annual general meeting and the determination of full-year profits.
- Final Dividend: Paid after the annual general meeting and the approval by shareholders.
- Special Dividend: Extraordinary one-time dividend due to exceptional company performance or events.
Key Events
- Announcement Date: The date on which the board of directors announces its intention to pay a final dividend.
- Record Date: The date on which shareholders must own shares to be eligible for the final dividend.
- Ex-Dividend Date: The date on or after which new shareholders are not entitled to the declared dividend.
- Payment Date: The date when the final dividend is actually paid to the shareholders.
Detailed Explanations
Determination and Payment Process
The process begins with the company’s board of directors reviewing the year’s profits and recommending a final dividend amount. Shareholders then vote on this recommendation during the AGM. If approved, the company makes a journal entry to reflect the dividend as a current liability until it is paid.
Mathematical Formulas
The dividend payout ratio is a key metric:
For individual dividends:
Charts and Diagrams
gantt
dateFormat YYYY-MM-DD
title Dividend Payment Timeline
section Final Dividend Process
Announcement Date :2024-03-01, 1d
Record Date :2024-03-10, 1d
Ex-Dividend Date :2024-03-08, 1d
Payment Date :2024-04-01, 1d
Importance
Final dividends are crucial as they:
- Provide shareholders with a portion of the company’s profits.
- Indicate company stability and profitability.
- Affect investor perceptions and stock prices.
Applicability
Final dividends apply to all publicly listed companies and many privately held firms that aim to return profits to shareholders periodically.
Examples
Example 1: A company with net earnings of $1 million declares a final dividend of $200,000. With 100,000 outstanding shares, the DPS would be $2.00.
Example 2: Company XYZ announces a final dividend of $1.50 per share with an ex-dividend date of March 8, 2024. Shareholders who own shares on March 7, 2024, will receive the dividend.
Related Terms
- Interim Dividend: A dividend paid before annual profits are determined.
- Earnings Per Share (EPS): A measure of a company’s profitability.
- Dividend Yield: A financial ratio indicating how much a company pays out in dividends relative to its share price.
Comparisons
Final Dividend vs. Interim Dividend:
- Timing: Final is after AGM; interim is before.
- Stability: Final usually signifies stable, year-end performance; interim may indicate expected performance.
Interesting Facts
- Some companies, like Apple and Microsoft, are known for their consistent final dividend payments.
- In 2020, due to the COVID-19 pandemic, many companies suspended final dividend payments to preserve cash.
Inspirational Stories
Example: Warren Buffet’s Berkshire Hathaway is famous for reinvesting profits instead of paying dividends, showing an alternative approach to profit allocation that has yielded impressive long-term returns.
Famous Quotes
“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” – John D. Rockefeller
Proverbs and Clichés
- “A bird in the hand is worth two in the bush” (suggesting the security of dividends over uncertain capital gains).
- “Cash is king” (highlighting the importance of cash flow, including dividends).
Jargon and Slang
- Dividend Aristocrats: Companies with a history of increasing dividends.
- Ex-div Day: Informal term for ex-dividend date.
FAQs
What happens if shareholders do not approve the final dividend at the AGM?
Can a company pay both interim and final dividends?
How do final dividends affect stock prices?
References
- Financial Times, Dividend History.
- “Principles of Corporate Finance” by Brealey, Myers, and Allen.
- Investopedia, Dividend Explanation.
Summary
Final dividends are a fundamental aspect of corporate finance, reflecting the company’s profitability and offering tangible returns to shareholders. They involve a structured process, including approval at the AGM and subsequent payment, influencing company stability and investor perception. Understanding final dividends helps in making informed investment decisions, appreciating corporate strategies, and gauging overall market performance.
