The federal government sometimes taxes dividends and capital gains at different rates.Other things held constant,if the tax rate on dividends is high relative to that on capital gains,then individuals with low taxable incomes should favor stocks with low payouts and high-income individuals should favor high-payout companies.

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The statement should be reversed: individuals with high taxable incomes, who are subject to higher tax rates on dividends, would prefer stocks with low payouts (to minimize dividend income) and favor capital gains, which might be taxed at a lower rate. Conversely, individuals with low taxable incomes might prefer high-payout companies due to their lower relative tax burden on dividends.

The Federal Government Sometimes Taxes Dividends and Capital Gains at Different