Bird In Hand

AAA

DEFINITION of 'Bird In Hand'

A theory that postulates that investors prefer dividends from a stock to potential capital gains because of the inherent uncertainty of the latter. Based on the adage that a bird in the hand is worth two in the bush, the bird-in-hand theory states that investors prefer the certainty of dividend payments to the possibility of substantially higher future capital gains.

INVESTOPEDIA EXPLAINS 'Bird In Hand'

The theory was developed by Myron Gordon and John Lintner as a counterpoint to the Modigliani-Miller dividend irrelevance theory, which maintains that investors are indifferent to whether their returns from holding a stock arise from dividends or capital gains. Under the bird-in-hand theory, stocks with high dividend payouts are sought by investors and consequently command a higher market price.

RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Payout Ratio

    The proportion of earnings paid out as dividends to shareholders, ...
  3. Current Dividend Preference

    A safety feature of preferred shares, whereby holders of such ...
  4. Merton Miller

    A prominent Chicago school economist. Miller was born in 1923 ...
  5. Franco Modigliani

    An Italian-American Keynesian economist. Modigliani was born ...
  6. Ex-Date

    The date on or after which a security is traded without a previously ...
RELATED FAQS
  1. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  2. When does the holding period on a stock dividend start?

    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
  3. What kind of companies in the utilities sector offer the most stable dividends for ...

    Among the companies that offer the most stable dividends for risk-averse investors are large, solidly established U.S.-based ... Read Full Answer >>
  4. What average annual total return does the utilities sector generate?

    Due to their highly stable earnings and cash flows, utilities companies are popular among investors interested in dividend ... Read Full Answer >>
  5. Why is the utilities sector popular among value investors?

    The utilities sector is popular among value investors due to the dividends paid by utility companies as well as the traditionally ... Read Full Answer >>
  6. What are the most popular mutual funds that give exposure to the utilities sector?

    Some of the most popular mutual funds that provide exposure to the utilities sector include American Century Utilities, Prudential ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Dissecting Declarations, Ex-Dividends And Record Dates

    Understanding the dates of the dividend payout process can be tricky. We clear up the confusion.
  2. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  3. Fundamental Analysis

    Evaluating Retained Earnings: What Gets Kept Counts

    A company's retained earnings matter. Be investment-savvy and learn how to analyze this often overlooked information.
  4. Fundamental Analysis

    Why Dividends Matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
  5. Investing Basics

    How Dividends Work For Investors

    Find out how a company can put its profits directly into your hands.
  6. Fundamental Analysis

    American Express Returns Vs. DJ Industrial Average

    American Express has handily outperformed the Dow Jones Industrial Average since 2009, but unusual weakness in the last year is taking its toll.
  7. Investing News

    The Financial Singularity Will Destroy Your Return

    Given the current and future growth of financial technology, many believe algorithms will soon define what drives market outcomes. With a wealth of big data, algorithms would be able to create ...
  8. Professionals

    The Most Popular ETFs with Financial Advisors

    Financial advisors might continue to perform well by holding these popular ETFs, but time is limited.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares Barclays 20+ Year Treasury Bond

    Learn about the iShares 20+ Year Treasury Bond ETF (TLT). TLT is a very liquid ETF with low costs that allow investors to gain exposure to treasuries.
  10. Investing

    Looking for Alternatives to Invest in Real Estate?

    There are several ways to invest in “real estate” via the stock market, buying stocks and hold them for years. We give you 5 ways to invest in real estate.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!