The residual dividend model The residual dividend policy approach to dividend policy is tased on the theory that a firm's cptimal dividend distnbution policy is a function of the finn's tarpet capital structure, the investment opportunities available to the firm, and the availability and cost of external capital. The firm makes. distributions based on the residubl carnings: Red Bnon Petroleum ince is expocted to penerate $140,000,000 in net income over the next yeac Aed Bson Petroleum's stockholders expect it to mantain as long-run dividend payout rato of 20% of eamings