Suppose the personal tax rate on dividend income increases. All else equal, one would expect the cost of equity for high-dividend firms to decrease.

Personal Tax Rate

The percentage at which an individual is taxed on their income, which can vary based on the income level and the country's tax laws.

Dividend Income

Income from dividends, which are payments made by a corporation to its shareholder members. It is often derived from the company's profits.

Cost of Equity

The rate of return that a company must offer investors to compensate for the risk of investing in its equity.