Lintner's Model


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.

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 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.

  1. Dividend Payout Ratio

    The percentage of earnings paid to shareholders in dividends. ...
  2. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present ...
  3. Dividend

    A distribution of a portion of a company's earnings, decided ...
  4. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  5. Earnings Estimate

    An analyst's estimate for a company's future quarterly or annual ...
  6. Earnings Surprise

    Occurs when a company's reported quarterly or annual profits ...
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