Clientele effect
Principles of Finance glossary · Principles Of Finance
Definition
The tendency of different investor classes (e.g., high-tax vs. tax-exempt) to favor stocks with particular dividend policies.
Clientele effect in plain English
A dividend is a cash payment a company hands its shareholders, usually a slice of its profits. Different investors want different things: a retiree living off income loves fat, steady dividends, while a wealthy investor who'd owe heavy taxes on that cash prefers a company that pays little and grows instead. The clientele effect is just the observation that each type of investor drifts toward the stocks whose dividend habits suit them, like shoppers self-sorting into the checkout lane that fits their cart. So a company's dividend policy quietly attracts its own natural crowd of shareholders.
Related Principles of Finance terms
Principles of Finance practice questions · Principles of Finance flashcards · Principles of Finance study guide