Despite some theoretical assertions, many investors do care a great deal about dividends. They believe that sure dividends today (a bird in the hand) are less risky than a retum in the form of capital gains in the future. The following table lints some factors that might affect an investor's preference for dividends. Indicate whether the given factors are likely to make an Investor prefer to receive more or fewer dividends. Investors will likely Prefer. More Fewer Dividends Dividends Factor Dividends are taxed in the year in which they are received, whereas capital gains are taxed when the stock is sold Investors expect a reliable annual cash flow from their stock portfolios Risk averse investors prefer to minimise uncertainty with their expectations of income from their Investment 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 for transaction) costs, firms and investors are indifferent to the paying or receiving of dividends However, as these restrictions are relaxed, various factors suggest that forms should pursue high or tow payouts. One such factor is: Dividends received for into the future are significantly more uncertain than dividends received in the near future. payout ratio Based on the factor described, investors, in general, wil tend to favor