A bird in the hand is worth two in the bush.[1]
In investing, this describes investors’ preference for dividends (the bird in the hand) relative to future price appreciation (two in the bush).
While this preference is undeniable, the impact of dividends on company valuation represents a fault line between a traditional finance view and a behavioral finance view of markets:
From a
traditional finance standpoint where all investors are rational and markets efficient the relevance of dividends on firm valuation can be tenuous because investors should be indifferent between dividends and capital gains.
A
behavioral finance perspective gives license to the impact of dividends on firm value because investors may prefer firms that pay dividends, assigning value to a steady payout and thus increasing the value of these companies.
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