Final answer:
Investors may prefer high dividend stocks because some institutions are required to hold them, and some investors rely on dividends for income. Dividends are not tax-exempt, and high dividends do not always equate to high capital gains.
Step-by-step explanation:
The reasons why investors may prefer high dividend stocks include: (b) some financial institutions may have legal restrictions that require them to hold stocks with established dividend records, and (d) some investors rely on dividends as a steady source of cash income for living expenses. It is a misconception that (a) dividends are tax-exempt; both dividends and capital gains are subject to taxes, though the rates may vary. Additionally, (c) it is not necessarily true that high dividend stocks always have high capital gains, as these aspects can vary independently.
When a company pays dividends, it distributes a portion of its profits to shareholders, providing a direct form of income that shareholders can use for various purposes, including reinvestment or as a reliable source of cash. Stable companies like utilities tend to offer consistent dividends. Over time, investments in such stocks can provide a combined return through both dividends and potential capital gains, although the emphasis for some investors is on the immediate, regular income that dividends offer.