Lintner's Model

Lintner’s model was developed by John Linter; it models a stable corporation’s dividend payout over time, which may fluctuate up and down.

The Board of Directors of a company can use Lintner’s model to figure out what the payout should be, based on their target goal, speed, and any market fluctuations. While it’s ideal to keep paying shareholders a consistent amount, that’s not always feasible, so companies often won’t start paying out more until they’re sure they’ll be able to do so consistently over time. Otherwise, you’re setting up shareholders for disappointment and the feeling of instability with too many fluctuations. Sticky pricing is a Thing.

Lintner didn’t use just theory, but actual data from 28 giant firms, to come up with his model: the change in dividend payout from the last period is equal to K, a constant, plus the difference of the firm’s target payout and dividend adjustment speed (adjusted by a coefficient), plus an error term (always).