Tax Differential View Of Dividend Policy

Loading the player...

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.

RELATED TERMS
  1. Dividend Payout Ratio

    The percentage of earnings paid to shareholders in dividends. ...
  2. Dividend

    A distribution of a portion of a company's earnings, decided ...
  3. Tax Benefit

    A tax benefit is an allowable deduction on a tax return intended ...
  4. Forward Dividend Yield

    An estimation of a year's dividend expressed as a percentage ...
  5. Tax Efficiency

    An attempt to minimize tax liability when given many different ...
  6. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
Related Articles
  1. Investing Basics

    The Power Of Dividend Growth

    Dividends may not seem exciting, but they can certainly be lucrative. Learn more here!
  2. Markets

    Is Growth Always A Good Thing?

    Getting big quickly looks good, but companies can get into trouble when they do it too fast. Find out how to spot this trouble.
  3. 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 ...
  4. Taxes

    What You Need To Know About Capital Gains And Taxes

    Find out how your profits are taxed and what to consider when making investment decisions.
  5. Options & Futures

    Dividends, Interest Rates And Their Effect On Stock Options

    Learn how analyzing these variables are crucial to knowing when to exercise early.
  6. Markets

    What Is A Dividend?

    Income investors love them and growth investors rarely expect them, but just what are dividends? Learn the story behind these payouts and why they are (or aren't) offered to investors.
  7. Fundamental Analysis

    Why Dividends Matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
  8. Stock Analysis

    The 5 Best Stocks That Pay Monthly Dividends (PSEC, LTC)

    Get the scoop on five of the best stocks that pay regular monthly dividends, offering investors looking for regular income dividend yields of up to 16%.
  9. Stock Analysis

    The Top Rated Dividend Paying Stocks for 2016 (ABBV, BA)

    Discover five of the top-rated stocks that pay investors solid dividends that you may want to consider adding to your investment portfolio in 2016.
  10. Investing Basics

    Inside IPO Roadshows

    Understand more about IPO road shows. Learn the reasons why an IPO road show is important for the success of a company's public offering.
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. What are the dividend reinvestment options for a mutual fund?

    There are two primary choices for how investors can choose to handle dividend distributions made by mutual funds that they ... Read Full Answer >>
  3. Do mutual funds pay dividends or interest?

    Depending on the type of investments included in the portfolio, mutual funds may pay dividends, interest, or both. Types ... Read Full Answer >>
  4. Should I sell my shares if a company suspends its dividend?

    Since 2008, when the Federal Reserve slashed interest rates to zero and then kept them there indefinitely, dividend-paying ... Read Full Answer >>
  5. Do hedge funds pay dividends?

    Hedge funds rarely pay dividends to the accredited investors who invest directly in them. Instead, these investors share ... Read Full Answer >>
  6. Which mutual funds pay the highest dividends?

    For many people, the reliability of dividend or interest income is one of the primary benefits of investing. Like individuals ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center