The purpose of this article is to investigate the impact of product market competition on the dividend payout policy of listed companies on the Tehran Stock Exchange. To achieve this aim, Herfindal-Hirshman index was considered as a measure of competition. Furthermore, cash dividend scaled by lagged total assets, cash dividend scaled by net income, cash dividend scaled by lagged sales and dividend per share was used as measures of dividend payouts. The data sample is restricted to 81 companies during an 8 years old period from 1381 to 1388. The results of hypothesis testing using panel data regression indicate that there is an insignificantly negative relationship between cash dividend scaled by lagged total assets, cash dividend scaled by lagged sales and Herfindal-Hirshman index even after controlling for potential confounding effects. Also, there is a significantly negative relationship between cash dividend scaled by net income, dividend per share and Herfindal-Hirshman index. In other words, the more the competition in industry group, the more is the dividend payouts. This finding is consistent with the outcome model. The implication of this result is that the competition will force companies to return excess cash to shareholders as dividend than investing them in non-profitable projects. Therefore, competition will be an effective disciplinary device.