16-4 The Rightists MM said that dividend policy is irrelevant because it does not affect shareholder value. MM did not say that payout should be random or erratic; for example, it may change over the life cycle of the firm. A young growth firm pays out little or nothing, to maximize the cash flow available for investment. As the firm matures, positive-NPV investment opportunities are harder to come by and growth slows down. There is cash available for payout to shareholders. In old age, profitable growth opportunities disappear, and payout may become much more generous. Of course MM assumed absolutely perfect and efficient capital markets. In MM's world, everyone is a rational optimizer. The right-wing payout party points to real-world imperfec- tions that could make high dividend payout ratios better than low ones. There is a natural clientele for high-payout stocks, for example. Some financial institutions are legally restricted from holding stocks lacking established dividend records. Trusts and endowment funds may prefer high-dividend stocks because dividends are regarded as spendable "income," whereas capital gains are "additions to principal." There is also a natural clientele of investors, such as the elderly, who look to their stock portfolios for a steady source of cash to live on. In principle, this cash could be easily generated from stocks paying no dividends at all; the investor could just sell off a small frac- tion of his or her holdings from time to time. But it is simpler and cheaper for the company to send a quarterly check than for its shareholders to sell, say, one share every three months. Regular dividends relieve many of its shareholders of transaction costs and considerable inconvenience