Bird-in-the-hand theory
Bird-in-the-hand theory holds that investors prefer a certain dividend today over an equally-sized but uncertain future capital gain, so a higher payout should lower a company's cost of equity.
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Company P and Company Q are each expected to generate €5.00 per share of value. P pays it out as a cash dividend now; Q retains the cash and its share price is merely expected to rise by €5.00. Bird-in-the-hand theory predicts investors value P more highly, because the dividend is certain and the capital gain is not.
Where it fits
SubjectCorporate FinanceAdvancedTopicDividend Policy & PayoutAdvanced