Description:
We study how corporate firms’ management can satisfy the shareholders by steady and growing dividend
payouts while financing investment growth from the profit. We set the percentage of the profit which is optimal
for steady dividends and the rest to be allocated for investment and dividend buffer account. A mean reversion
stochastic differential equation with investment function in the drift term has been used to find the optimal dividend
and retainment levels. One of the findings shows that for each level of profit there exists a percentage which is
optimal for paying steady dividends while financing investment growth. Also we find that having low interest
rates is favourable for the strategy of paying steady dividend with investment growth. Moreover, we compared
the proposed strategy with a situation of steady dividend without investment and found that the strategy with
investment is more appropriate as it gives more values to the shareholders. In addition we find that the exponential
and linear responses of the investment function on investment amount give out the same results. Companies
in developing economies should consider steady and growing dividends as they expand their investments, while
policies of such economies should enforce low interest rates and influence companies to pay dividends.