dividend payout

1. There may be investors, such as retired individuals, who prefer current
income to growth in stock value. However, this should not matter since
investors could sell a portion of the low dividend paying stocks to
supplement cash flow.
• In the real world, however, the sale of securities involves transactions
costs that may outweigh the differential in payout.
• Therefore, some individuals are better off holding high dividend paying
securities.
2. After accepting all positive NPV projects, firms should payout dividends
out of extra cash if the corporate tax rate > the individual tax rate.
• DEBATE: Therefore, the debate on which dividend policy increases
the value of the firm is still unresolved from a tax viewpoint.
• Only if there exists an unsatisfied tax clientele may the firm increase its
value in the short run.