Walter's Model

Walter’s model explains how a company's dividend policy affects its stock price and value. It suggests that the optimal dividend amount balances the benefits of paying dividends to shareholders with the costs of reinvesting earnings into the company. According to the model, if a company pays too high a dividend, it might lack funds for growth, reducing future value. Conversely, paying too low a dividend or none at all can cause investor dissatisfaction. The model emphasizes that the consistent, sustainable dividend level maximizes the company's overall value by balancing current investor needs with long-term growth prospects.