15: Assignment-Distributions to Shareholders: Dividends and Repurchases In examining investors' preferences for dividends, it is useful to begin with the concept of dividend irrelevance. Dividend irrelevance suggests that in a world with no taxes or brokerage (or transaction) costs, firms and investors are indifferent to the paying or receiving of dividends. However, as these restrictions are relaxed, various factors suggest that firms should pursue high or low payouts. One such factor is: Taxes on capital gains are deferred until the capital gain is realized, whereas taxes on dividends are due in the year in which they are received, Based on the factor described, investors, in general, will tend to favor payout ratio