Dividend vs. Interest: What's the Difference?
Edited by Harlon Moss || By Janet White || Published on November 5, 2023
A dividend is a portion of a company's profit paid to shareholders. Interest is the cost of borrowing money or the return earned on a deposit.
Key Differences
Dividends and interest, while both forms of financial return, have distinct origins and implications. A dividend represents a share of profits that a company decides to distribute to its shareholders. Companies usually offer dividends as a way to share their financial success with those who've invested in them. Depending on company policy, dividends might be frequent or occasional.
Interest, contrastingly, stems from borrowing or lending money. When you lend money, such as depositing in a bank account, you earn interest as a reward for allowing the bank to use your funds. Conversely, when borrowing money, you pay interest as a cost for the privilege of using someone else's capital. The rate of interest can vary based on numerous factors, including risk and duration of the loan.
It's significant to understand that dividends are not guaranteed. Companies may choose to reinvest profits instead of distributing them. This decision often hinges on the company's financial health and strategic growth plans. On the other hand, interest, once agreed upon, is typically a fixed obligation, especially in the context of loans.
Moreover, the tax implications for dividends and interest may differ. In many jurisdictions, dividends and interest incomes are taxed at different rates. This is essential for investors and borrowers to consider when managing their financial portfolios.
Lastly, while dividends are predominantly linked with equity investments, interest is tied to debt, be it in the form of loans, bonds, or savings accounts.
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Comparison Chart
Source
Portion of company's profit
Cost of borrowing or return on deposit
Association
Equity investment
Debt (loans, bonds) or deposits
Guarantee
Not guaranteed, depends on company's decisions
Typically fixed once agreed upon
Payment Frequency
Can vary (quarterly, annually, or occasional)
Often fixed (monthly, quarterly, or annually)
Tax Implications
Taxed differently from interest in many jurisdictions
Typically has its own tax rate, distinct from dividends
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Dividend and Interest Definitions
Dividend
A reward, bonus, or benefit given to someone.
The extra vacation days were seen as a dividend of the company's success.
Interest
Money paid regularly at a particular rate for the use of money lent.
The interest on my student loan is 5% per annum.
Dividend
A payment made by a corporation to its shareholders from its profits.
As an Apple shareholder, John received a quarterly dividend.
Interest
A feeling of curiosity or concern about something.
The lecture captured his interest from start to finish.
Dividend
A return on an investment.
The dividend on her stock portfolio was substantial this year.
Interest
A stake or involvement in an undertaking.
He has a vested interest in the company's success.
Dividend
A sum of money paid regularly by a company to its shareholders.
The oil company has consistently paid high dividends to its investors.
Interest
A state of curiosity or concern about or attention to something
An interest in sports.
Dividend
The number to be divided in a division operation.
In the equation 20 ÷ 4 = 5, 20 is the dividend.
Interest
Something, such as a quality, subject, or activity, that evokes this mental state
Counts the theater among his interests.
Dividend
(Mathematics) A quantity to be divided.
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 profits paid to a stockholder or to a policyholder in a mutual insurance society.
Interest
A right, claim, or legal share
An interest in the new company.
Dividend
A payment pro rata to a creditor of a person adjudged bankrupt.
Interest
Something in which such a right, claim, or share is held
Has interests overseas.
Dividend
A share of a surplus; a bonus.
Interest
A person or group of persons holding such a right, claim, or share
A petroleum interest.
Dividend
An unexpected gain, benefit, or advantage.
Interest
Involvement with or participation in something
She has an interest in the quality of her education.
Dividend
(finance) A cash payment of money by a company to its shareholders, usually made periodically (e.g., quarterly or annually).
Interest
A charge for a loan, usually a percentage of the amount loaned.
Dividend
(arithmetic) A number or expression that is to be divided by another.
In "42 ÷ 3" the dividend is the 42.
Interest
An excess or bonus beyond what is expected or due.
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
An interest group.
Dividend
To pay out a dividend.
Interest
The particular cause supported by an interest group.
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
To arouse the curiosity or hold the attention of
Your opinions interest me.
Dividend
A number or quantity which is to be divided.
Interest
To cause to become involved or concerned with
Tried to interest her in taking a walk.
Dividend
That part of the earnings of a corporation that is distributed to its shareholders; usually paid quarterly
Interest
(Archaic) To concern or affect.
Dividend
A number to be divided by another number
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%.
Dividend
A bonus; something extra (especially a share of a surplus)
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!
Interest
A charge for borrowed money, generally a percentage of the amount borrowed.
She secured a loan with a low-interest rate.
Interest
The advantage or benefit of a person or group.
The new policy was in the public's interest.
FAQs
Do all stocks pay dividends?
No, some companies reinvest profits rather than distributing them as dividends.
Are dividends guaranteed?
No, dividends are not guaranteed and depend on a company's financial decisions.
What determines the interest rate on a loan?
Factors like credit score, loan duration, and prevailing market rates can influence interest rates.
Can a company that's not profitable pay dividends?
Yes, but it's rare and might indicate the company is using reserves or acquiring debt.
Why might a company stop paying dividends?
Economic downturns, reinvestments, or financial difficulties could be reasons.
Do dividends affect stock price?
Yes, stocks typically decrease in value by the amount of the declared dividend on the ex-dividend date.
Can interest rates be negative?
Yes, in some economic situations, central banks set negative interest rates.
Is interest always a cost for borrowers?
Yes, interest represents the cost of borrowing money.
What's compound interest?
Compound interest is interest on both the initial amount and accumulated interest.
Are dividends only paid to stock shareholders?
Primarily, but other securities, like mutual funds or certain bonds, might also pay dividends.
Is interest earned on a savings account taxable?
Yes, in most jurisdictions, interest income is taxable.
Is interest always paid in monetary terms?
While typically in monetary form, interest can also be in-kind, especially in informal lending.
What's a dividend yield?
Dividend yield is the annual dividend per share divided by the stock's price.
Are dividends only paid in cash?
Primarily, but some companies offer stock dividends as an alternative.
How often are dividends paid?
It varies, but common frequencies include quarterly, semi-annually, or annually.
How is interest rate determined for savings accounts?
Banks set rates based on factors like reserve requirements, market demand, and central bank policies.
How is mortgage interest calculated?
It can be simple or compounded, but it's typically calculated monthly on the outstanding balance.
Can dividend payments be automated?
Yes, many brokerages offer dividend reinvestment plans to automate the process.
What's the difference between simple and compound interest?
Simple interest is on the principal alone; compound interest is on both principal and accrued interest.
Is interest paid on bonds?
Yes, bonds typically pay periodic interest called coupon payments.
About Author
Written by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
Edited by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
