What is 'Lintner's Model'
Lintner's model is 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.
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BREAKING DOWN '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 longrun target dividendstoearnings ratios according to the amount of positive netpresentvalue (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.
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