Although dividend payments reduce the total firm funds to pay bondholders the payment of dividends can reduce agency costs by:

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By reducing free cash flows, the firm can reduce the possibility of managers using excess funds for personal gain or using the funds to pursue risky projects that benefit themselves rather than the firm as a whole. This helps reduce agency costs. Regular schedule of dividend payments may help with predicting cash flows, but it does not necessarily reduce agency costs. Sharing the dividend payments with bondholders is not a common practice nor does it directly reduce agency costs. Ensuring that only shareholders of record receive the dividend does not have any impact on agency costs.

Although Dividend Payments Reduce the Total Firm Funds to Pay