Tax Differential View Of Dividend Policy

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DEFINITION of 'Tax Differential View Of Dividend Policy'

The belief that shareholders prefer equity appreciation to dividends because capital gains are effectively taxed at lower rates than dividends. Corporations that adopt this viewpoint generally have lower targeted payout ratios, or a long-term dividend-to-earnings ratio, as dividend payments are set rather than variable.

BREAKING DOWN 'Tax Differential View Of Dividend Policy'

Because companies that assume a tax differential viewpoint are focused on share appreciation, they often have more funds available for growth and expansion than companies focused merely on increasing their dividends. The extent of the opinion depends on the tax structure of the region in which the company operates.

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