Lintner Model

The Lintner Model, developed by economist John Lintner, describes how companies decide on dividend payments to shareholders. It suggests that firms aim to pay a stable and predictable dividend, adjusting gradually based on their earnings. Instead of distributing all profits, they retain some for reinvestment. Companies consider their target payout ratio—how much of their earnings they want to distribute as dividends—while also factoring in current earnings and prior dividends. This approach helps investors anticipate future dividends, providing stability and encouraging long-term investment in the company.