Difference between Interest and Dividend

Dividend and interest income both results in inflow of money for a person or a company, however they both are different and therefore one should know the difference between the two, let’s look at some of the differences between the two  –

  1. While interest is received when one has given debt to a company, while dividend is received when the person has bought shares of a company.
  2. Interest has to be paid by a company even if company is making losses, in other words it is a compulsory payment while dividend payment is made only when company has made profit and also enough cash and therefore dividend payment is at the discretion of the top management of the company.
  3. While rate of interest of a debt is fixed which results in fixed income every year whereas the rate of dividend is not fixed and it fluctuates widely which makes it impossible to forecast what would be income from it in coming months or years.
  4. While interest payment by a company is a tax deductible expense whereas dividend payment is not a tax deductible expense.
  5. In times of high interest rate periods interest income is likely to outperform and in times of low rates cycle dividend income along with capital appreciation is attractive.
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