When investors are uncertain about firm value, they collect private information and contemplate the decisions made by management before trading. In this study, we examine the effects of policy uncertainty on managers' payout decisions and investors' reactions to these decisions. We show that managers tend to increase dividend payouts when uncertainty surrounding government policies is high. This relationship is particularly evident among better performing firms. Investors also respond more favorably to dividend increases in times of uncertainty. As a result, we conclude that policy uncertainty affects the firm's information environment owing to which managers respond to investor demand for information by paying dividends to signal firm quality.