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. Dividend

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

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

    The difference between the present value of cash inflows and ...
  4. Financial Modeling

    The process by which a firm constructs a financial representation ...
  5. Dividend Policy

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

    The percentage of earnings paid to shareholders in dividends. ...
RELATED FAQS
  1. How can the price of a stock change on the ex-dividend date?

    An investor looking for a dividend-paying stock has two important dates to consider when investing in a company. The first ... Read Full Answer >>
  2. How is the ex-dividend date for a dividend on a stock determined?

    The ex-dividend date is actually determined by the appropriate stock exchange, not by the company paying the dividend. The ... Read Full Answer >>
  3. What is the average annual dividend yield of companies in the automotive sector?

    As of May 2015, using trailing 12-month data, the annual dividend yields of industries in the automotive sector are 1.01% ... Read Full Answer >>
  4. How can I find out the ex-dividend date for a stock's dividend?

    Existing shareholders of a company's stock receive notification, typically by mail, when the company declares a dividend ... Read Full Answer >>
  5. How do I calculate a modified duration using Matlab?

    The modified duration gauges the sensitivity of the fixed income securities to changes in interest rates. To calculate the ... Read Full Answer >>
  6. How do I calculate the rule of 72 using Matlab?

    In finance, the rule of 72 is a useful shortcut to assess how long it takes an investment to double given its annual growth ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    The Perks Of Dividend Reinvestment Plans

    These plans offer shareholders a way to directly invest in some of the top companies without the commissions.
  2. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  3. Fundamental Analysis

    Why Dividends Matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
  4. Investing Basics

    How Dividends Work For Investors

    Find out how a company can put its profits directly into your hands.
  5. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  6. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  7. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.
  8. Personal Finance

    More Bonuses And Fewer Raises Affect Workers

    Companies are increasingly replacing salary increases with bonuses, much to the detriment of employees.
  9. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  10. Fundamental Analysis

    Explaining the Empirical Rule

    The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!