An investor who requires an 18% percent return for a stock that pays no dividends and requires a 12% return for a stock that pays its entire return from dividends may be following the bird-in-the-hand dividend theory.

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The bird-in-the-hand dividend theory implies that investors prefer a certain dividend payment today to a future uncertain capital gains, and therefore they require a higher return for stocks that do not pay dividends or have low dividend yields. The fact that the investor requires an 18% return for a non-dividend stock and a lower 12% return for a stock that pays all its return from dividends suggests that they prioritize the immediate income, which is consistent with the bird-in-the-hand theory.

An Investor Who Requires an 18% Percent Return for a Stock