The bird-in-hand theory is a long-held belief among investors that dividends from stock investing are preferable to potential capital gains. This preference is based on the assumption that there is more uncertainty associated with future capital gains than with dividend payments. The adage, "a bird in the hand is worth two in the bush," sums up this thinking, as it suggests that it is better to have a guaranteed payment (the bird in hand) rather than hope for a larger payment later on (two birds in the bush).There are several reasons why investors may prefer dividends over capital gains. First, dividends provide certainty of income, while future capital gains are not guaranteed. Second, taxes are often lower on dividend income than on capital gains income. Finally, many investors believe that companies which pay high dividends are healthier and more stable than those which do not pay out any profits to shareholders.
