Dividends4Life: Modern Dividend Theory

Modern Dividend Theory

Posted by D4L | Thursday, March 29, 2012 | | 0 comments »

According to Investopedia, Modern Portfolio Theory (MPT) is defined as follows: "A theory on how risk-averse investors can construct portfolios to optimize or maximize expected [total] return based on a given level of market risk, emphasizing that risk is an inherent part of higher reward." I've been thinking that it's time we developed a parallel Modern Income Theory. Part of that would be a Modern Dividend Theory (MDT). I am going to restrict myself to the latter, because it is my area of expertise.

I am going to try to start off developing this theory by comparing MPT concepts to analogous MDT concepts. The MDT concepts are hyptheses, but then again so are most MPT concepts. As you read through the following, you will notice significant contrasts, starting right off with the underlying goals themselves. I think this is why MPT proponents have difficulty even talking to MDT proponents, because the goals and tenets are so different.

Source: Seeking Alpha

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