Why do institutions like pension funds and financial institutions prefer dividends over selling stocks?

Institutions such as pension funds and financial institutions often prioritize dividends over selling stocks primarily because of the steady income that dividends provide. Dividends represent a reliable stream of income that can be predictably expected from investments, particularly important for institutions that need to meet certain cash flow obligations, such as pension payments.

The emphasis on steady income is paramount for these institutions as they often have long-term liabilities that must be funded consistently. By receiving dividends, they can plan their future cash flows more effectively, ensuring they have the necessary funds to cover obligations to their beneficiaries. This consistent income allows them to reinvest in their portfolios or cover operational costs without having to sell off stock holdings, which may not always align with favorable market conditions.

While tax benefits, portfolio diversification, and capital gains are important factors in investment strategies, the priority for stable and predictable income aligns closely with the operational needs and financial strategies of institutions like pension funds and financial institutions.