easy · Principles of Finance cost-of-capital-structure

According to the 'Lintner Model' of dividend setting, how do firms typically adjust their dividend payouts?

1. Firms only pay dividends when they have no more debt to pay down.
2. Firms pay a constant dollar amount every year, regardless of earnings growth.
3. Firms pay out all residual cash flow after funding every positive-NPV project.
4. Firms gradually move toward a target payout ratio, 'smoothing' dividends to avoid cuts.

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