Generally, companies distribute a portion of its profit known as dividend among the shareholders in proportion to the amount paid-up on the shares held by them after obtaining approval from the Annual General Meeting (AGM) and finalizing the financial statement.
However, it’s not obligatory for a company to wait for the finalization of financial statements and completion of AGM. A company can also declare interim dividend before its Annual General Meeting (AGM) and finalization of financial statements based on the company’s interim financial statement.
The dictionary meaning of the word “interim” is relating to less than a full year’s business activity. Interim dividend relates to a particular period’s earning which is less than a full accounting year. Based on that period’s earning board of directors decide the amount of interim dividend to be paid to shareholders.
It’s not obligatory for a company to pay the interim dividend. A company can skip paying it depending on company’s policy.
Company’s net profit is the most important factor in determining the amount of interim dividend. It’s announced and paid by the board of directors based on the power assigned to them.
When a company, announces the dividend, they also announce a date known as the record date. The interim dividend shall be paid to those equity shareholders of the Company, whose names appear in the Register of Members of the Company or in records of Depositories as Beneficial Owners of Equity Shares as on the Record Date fixed.
For example, if a company has decided to pay the interim dividend of Rs. 25 per share then each shareholder registered with the company as on the record date will get Rs 25 per share. If you are holding 100 shares of the company, your interim dividend will be Rs 2500 (i.e. 25*100).