Dividend vs. Interest — What's the Difference?
By Urooj Arif & Maham Liaqat — Updated on April 8, 2024
Dividend is a share of profits paid to shareholders by a corporation, whereas interest is a charge for borrowed money, typically a percentage of the loan amount.
Difference Between Dividend and Interest
Table of Contents
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Key Differences
Dividends are payments made by a corporation to its shareholders, usually as a distribution of profits. When a company earns a profit, it can either reinvest it in the business or distribute it to shareholders as dividends. On the other hand, interest is a payment made by a borrower to a lender as a fee for the use of borrowed money. Interest is typically expressed as an annual percentage rate (APR).
While dividends are typically paid to shareholders of stocks, especially those holding shares in profitable and established companies, interest payments are made by borrowers to lenders. This includes individuals, corporations, and governments that borrow money through loans, bonds, or credit lines. Whereas dividends are discretionary and can be adjusted or skipped by the company's board of directors, interest payments are obligatory and must be made as agreed in the lending terms.
Dividends can be issued in various forms, such as cash, additional shares of stock, or other property. A company’s ability to pay dividends depends on its profitability and financial policy. Interest, however, is usually paid in cash and is determined by the interest rate agreed upon by the lender and the borrower at the time of the loan agreement.
The frequency of dividend payments can vary, with some companies paying dividends quarterly, semi-annually, or annually, while special dividends may be paid irregularly. Interest payments, on the other hand, have a predetermined schedule that could be monthly, quarterly, semi-annually, or annually, depending on the terms of the loan.
Dividend payments are not guaranteed and can fluctuate based on the company's earnings and financial health. In contrast, interest rates are typically fixed or variable but are agreed upon in advance, providing a predictable stream of income to the lender.
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Comparison Chart
Nature
Profit distribution
Payment for borrowed money
Paid To
Shareholders
Lenders/bondholders
Dependency
Corporate profits and policies
Agreed terms of the loan/bond
Payment Frequency
Variable (often quarterly)
Fixed (as per loan agreement, often monthly)
Forms
Cash, stock, or property
Usually cash
Predictability
Can vary, not guaranteed
Generally fixed or set by variable rate
Requirement to Pay
Discretionary based on company's decision
Mandatory as per agreement
Compare with Definitions
Dividend
A reward for investment in a company's equity.
The annual dividend acts as an incentive for shareholders.
Interest
The cost of borrowing money, typically a percentage of the amount borrowed.
The bank charges an interest rate of 5% on personal loans.
Dividend
An income from investment in shares of a company.
Her portfolio generates a significant amount in dividends each year.
Interest
A payment made to a lender for the use of borrowed money.
Monthly interest payments on the mortgage are due on the first.
Dividend
A portion of a company's earnings distributed to shareholders.
The board declared a dividend of $1.50 per share.
Interest
Income from lending money or investing in bonds.
Interest income is a significant part of the bank's revenue.
Dividend
A payment made by a corporation to its shareholders, usually as a distribution of profits.
Investors often buy stocks for the dividend income.
Interest
A charge for the privilege of borrowing money.
Interest accrues daily on the outstanding loan balance.
Dividend
A distribution of a portion of a company's earnings.
The company’s robust earnings resulted in a higher dividend this quarter.
Interest
The financial charge for borrowing money or the return on investment.
She received a high rate of interest on her savings account.
Dividend
A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a proportion of the profit as a dividend to shareholders.
Interest
Interest, in finance and economics, is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct from a fee which the borrower may pay the lender or some third party.
Dividend
(Mathematics) A quantity to be divided.
Interest
A state of curiosity or concern about or attention to something
An interest in sports.
Dividend
A share of profits paid to a stockholder or to a policyholder in a mutual insurance society.
Interest
Something, such as a quality, subject, or activity, that evokes this mental state
Counts the theater among his interests.
Dividend
A payment pro rata to a creditor of a person adjudged bankrupt.
Interest
Often interests Regard for one's own benefit or advantage; self-interest
It is in your best interest to cooperate. She kept her own interests in mind.
Dividend
A share of a surplus; a bonus.
Interest
A right, claim, or legal share
An interest in the new company.
Dividend
An unexpected gain, benefit, or advantage.
Interest
Something in which such a right, claim, or share is held
Has interests overseas.
Dividend
(finance) A cash payment of money by a company to its shareholders, usually made periodically (e.g., quarterly or annually).
Interest
A person or group of persons holding such a right, claim, or share
A petroleum interest.
Dividend
(arithmetic) A number or expression that is to be divided by another.
In "42 ÷ 3" the dividend is the 42.
Interest
Involvement with or participation in something
She has an interest in the quality of her education.
Dividend
(figuratively) Beneficial results from a metaphorical investment (of time, effort, etc.)
His 10,000 hours of practice and recitals eventually paid dividends when he become first-chair violinist.
Interest
A charge for a loan, usually a percentage of the amount loaned.
Dividend
To pay out a dividend.
Interest
An excess or bonus beyond what is expected or due.
Dividend
A sum of money to be divided and distributed; the share of a sum divided that falls to each individual; a distribute sum, share, or percentage; - applied to the profits as appropriated among shareholders, and to assets as apportioned among creditors; as, the dividend of a bank, a railway corporation, or a bankrupt estate.
Interest
An interest group.
Dividend
A number or quantity which is to be divided.
Interest
The particular cause supported by an interest group.
Dividend
That part of the earnings of a corporation that is distributed to its shareholders; usually paid quarterly
Interest
To arouse the curiosity or hold the attention of
Your opinions interest me.
Dividend
A number to be divided by another number
Interest
To cause to become involved or concerned with
Tried to interest her in taking a walk.
Dividend
A bonus; something extra (especially a share of a surplus)
Interest
(Archaic) To concern or affect.
Interest
The price paid for obtaining, or price received for providing, money or goods in a credit transaction, calculated as a fraction of the amount or value of what was borrowed.
Our bank offers borrowers an annual interest of 5%.
Interest
Any excess over and above an exact equivalent
Interest
(uncountable) A great attention and concern from someone or something; intellectual curiosity.
He has a lot of interest in vintage cars.
Interest
(uncountable) Attention that is given to or received from someone or something.
Interest
(countable) An involvement, claim, right, share, stake in or link with a financial, business, or other undertaking or endeavor.
When scientists and doctors write articles and when politicians run for office, they are required in many countries to declare any existing conflicts of interest.
I have business interests in South Africa.
She has an interest in the proceedings, and all stakeholders' interests must be protected.
Interest
(countable) Something or someone one is interested in.
Lexicography is one of my interests.
Victorian furniture is an interest of mine.
The main character's romantic interest will be played by a non-professional actor.
Interest
(uncountable) Condition or quality of exciting concern or being of importance.
Interest
Injury, or compensation for injury; damages.
Interest
The persons interested in any particular business or measure, taken collectively.
The iron interest;
The cotton interest
Interest
To engage the attention of; to awaken interest in; to excite emotion or passion in, in behalf of a person or thing.
It might interest you to learn that others have already tried that approach.
Action films don't really interest me.
Interest
To be concerned with or engaged in; to affect; to concern; to excite.
Interest
(obsolete) To cause or permit to share.
Interest
To engage the attention of; to awaken interest in; to excite emotion or passion in, in behalf of a person or thing; as, the subject did not interest him; to interest one in charitable work.
To love our native country . . . to be interested in its concerns is natural to all men.
A goddess who used to interest herself in marriages.
Interest
To be concerned with or engaged in; to affect; to concern; to excite; - often used impersonally.
Or rather, gracious sir,Create me to this glory, since my causeDoth interest this fair quarrel.
Interest
To cause or permit to share.
The mystical communion of all faithful men is such as maketh every one to be interested in those precious blessings which any one of them receiveth at God's hands.
Interest
Excitement of feeling, whether pleasant or painful, accompanying special attention to some object; concern; a desire to learn more about a topic or engage often in an activity.
So much interest have I in thy sorrow.
Interest
Participation in advantage, profit, and responsibility; share; portion; part; as, an interest in a brewery; he has parted with his interest in the stocks.
Interest
Advantage, personal or general; good, regarded as a selfish benefit; profit; benefit.
Divisions hinder the common interest and public good.
When interest calls of all her sneaking train.
Interest
A fee paid for the use of money; a fee paid for a loan; - usually reckoned as a percentage; as, interest at five per cent per annum on ten thousand dollars.
They have told their money, and let outTheir coin upon large interest.
Interest
Any excess of advantage over and above an exact equivalent for what is given or rendered.
You shall have your desires with interest.
Interest
The persons interested in any particular business or measure, taken collectively; as, the iron interest; the cotton interest.
Interest
A sense of concern with and curiosity about someone or something;
An interest in music
Interest
The power of attracting or holding one's interest (because it is unusual or exciting etc.);
They said nothing of great interest
Primary colors can add interest to a room
Interest
A reason for wanting something done;
For your sake
Died for the sake of his country
In the interest of safety
In the common interest
Interest
A fixed charge for borrowing money; usually a percentage of the amount borrowed;
How much interest do you pay on your mortgage?
Interest
A diversion that occupies one's time and thoughts (usually pleasantly);
Sailing is her favorite pastime
His main pastime is gambling
He counts reading among his interests
They criticized the boy for his limited pursuits
Interest
(law) a right or legal share of something; a financial involvement with something;
They have interests all over the world
A stake in the company's future
Interest
(usually plural) a social group whose members control some field of activity and who have common aims;
The iron interests stepped up production
Interest
Excite the curiosity of; engage the interest of
Interest
Be on the mind of;
I worry about the second Germanic consonant
Interest
Be of importance or consequence;
This matters to me!
Common Curiosities
How is interest calculated?
Interest is usually calculated as a percentage of the principal amount over a certain period.
Can dividends be in forms other than cash?
Yes, dividends can also be paid in stock or other property.
What is interest?
Interest is the charge for borrowing money, typically a percentage of the borrowed amount.
Who decides the dividend amount?
The company’s board of directors decides the amount and timing of dividends.
What affects interest rates?
Interest rates are affected by factors like monetary policy, inflation, and the lending risk.
What is the difference between a dividend yield and interest rate?
Dividend yield is a percentage of a company’s share price, while the interest rate is the charge on borrowed money.
How do dividends benefit shareholders?
Dividends provide shareholders with a regular income from their investments.
What is a dividend?
A dividend is a payment made by a company to its shareholders, usually derived from profits.
How often are dividends paid?
Dividends are often paid quarterly, but the frequency can vary.
Are dividends guaranteed?
No, dividends are not guaranteed and can vary based on the company's performance.
Is interest payment mandatory?
Yes, interest payments are mandatory and must be made as per the loan agreement.
Can the interest rate change over time?
Yes, variable interest rates can change over the life of the loan.
Why might a company choose not to pay dividends?
A company might choose to reinvest profits into the business instead of paying dividends to fuel growth.
Do all companies pay dividends?
Not all companies pay dividends, especially those that are growing or reinvesting profits.
Are interest payments tax-deductible?
Interest payments on business loans are often tax-deductible, but personal loan interest typically is not.
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Written by
Urooj ArifUrooj is a skilled content writer at Ask Difference, known for her exceptional ability to simplify complex topics into engaging and informative content. With a passion for research and a flair for clear, concise writing, she consistently delivers articles that resonate with our diverse audience.
Co-written by
Maham Liaqat
