what is bird in hand 
the bird in hand is a theory that says investors prefer dividends from stock investing to potential capital gains because of the inherent uncertainty associated with capital gains based on the adage 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 understanding bird in handmyron gordon and john lintner developed the bird in hand theory as a counterpoint to the modigliani miller dividend irrelevance theory the dividend irrelevance theory maintains that investors are indifferent to whether their returns from holding 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 investors who subscribe to the bird in hand theory believe that dividends are more certain than capital gains bird in hand vs capital gains investinginvesting in capital gains is mainly predicated on conjecture an investor may gain an advantage in capital gains by conducting extensive company market and macroeconomic research however ultimately the performance of a stock hinges on a host of factors that are out of the investor s control for this reason capital gains investing represents the two in the bush side of the adage investors chase capital gains because there is a possibility that those gains may be large but it is equally possible that capital gains may be nonexistent or worse negative broad stock market indices such as the dow jones industrial average djia and the standard poor s s p 500 have averaged annual returns of up to 10 over the long term finding dividends that high is difficult even stocks in notoriously high dividend industries such as utilities and telecommunications tend to top out at 5 however if a company has been paying a dividend yield of for example 5 for many years receiving that return in a given year is more likely than earning 10 in capital gains during years such as 2001 and 2008 the broad stock market indices posted big losses despite trending upward over the long term in similar years dividend income is more reliable and secure hence these more stable years are associated with the bird in hand theory disadvantages of the bird in handlegendary investor warren buffett once opined that where investing is concerned what is comfortable is rarely profitable dividend investing at 5 per year provides near guaranteed returns and security however over the long term the pure dividend investor earns far less money than the pure capital gains investor moreover during some years such as the late 1970s dividend income while secure and comfortable has been insufficient even to keep pace with inflation example of bird in handas a dividend paying stock coca cola ko would be a stock that fits in with a bird in hand theory based investing strategy according to coca cola the company began paying regular quarterly dividends starting in the 1920s further the company has increased these payments every year since 1964 1