... Also, according to Myron J. Gordon, dividend payments are cash in hand whereas capital gain is relatively uncertain. He argued that dividend which expected in the near future is less risky than those expected in the more distant future. This is because shareholders are risk adverse, then dividend expected in the more distant future will be discontinued at a higher rate to compensate for the extra risk taken. In addition, Gordon also suggests that investors are not different between a dollar of dividend and the capital gains that expected from a dollar of retained profits. The expected future capital gains are uncertain because it depends on the returns from risky future investment. As a result, the dividend payment will reduce investors' uncertainty (risk) about the rate of return. And a reduction in risk will reduce the cost of equity (Ke), and therefore increase in the share price. In the reason ...

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