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 return in the form of capital gains in the future. The following table lists 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 Dividends Fewer Dividends Factor An investor is on a fixed income and depends on returns from investment. Dividends are taxed in the year in which they are received, whereas capital gains are taxed when the stock is sold Investors believe in the bird-in-the-hand theory 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 brokerage costs or taxes, 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: Firms incur various legal and administrative costs (called flotation costs) when they issue new stock Based on the factor given, identify whether firms, in general, will tend to favour high or low payout ratios. O Favour a low payout Favour a high payout