Lintner's Model

AAA

DEFINITION of 'Lintner's Model'

A model stating that dividend policy has two parameters: (1) the target payout ratio and (2) the speed at which current dividends adjust to the target.

INVESTOPEDIA EXPLAINS 'Lintner's Model'

In 1956 John Lintner developed this theory based on two important things that he observed about dividend policy:

1) Companies tend to set long-run target dividends-to-earnings ratios according to the amount of positive net-present-value (NPV) projects they have available.

2) Earnings increases are not always sustainable. As a result, dividend policy is not changed until managers can see that new earnings levels are sustainable.

RELATED TERMS
  1. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  2. Net Present Value - NPV

    The difference between the present value of cash inflows and ...
  3. Dividend

    1. A distribution of a portion of a company's earnings, decided ...
  4. Dividend Policy

    The policy a company uses to decide how much it will pay out ...
  5. Dividend Payout Ratio

    The percentage of earnings paid to shareholders in dividends. ...
  6. Financial Modeling

    The process by which a firm constructs a financial representation ...
Related Articles
  1. The Perks Of Dividend Reinvestment Plans
    Fundamental Analysis

    The Perks Of Dividend Reinvestment Plans

  2. How And Why Do Companies Pay Dividends?
    Investing Basics

    How And Why Do Companies Pay Dividends?

  3. Why Dividends Matter
    Fundamental Analysis

    Why Dividends Matter

  4. How Dividends Work For Investors
    Investing Basics

    How Dividends Work For Investors

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center