The payback period answers the following question “How long would it take for a dividend-paying stock to pay back the stock’s original price?” The time it takes for an investment’s cash outflows to sum to the original outlay is called the payback period, and it is considered a simplistic and crude measure of risk.
The payback period is widely hated by financial professionals but is a simple metric laypeople instinctively use when evaluating an investment. Notice that the payback period fails to account for how dividend distributions in earlier years are worth more than the same dollar value paid out later in the future. You would be able to reinvest the earlier distribution and earn a return on it, making it worth more. Even worse, it ignores whatever capital gains you would reap upon reselling the stock.
Since many dividend investors are attracted to high-paying dividend companies based on the idea that they can ignore what the markets do and simply focus on their dividend income, the payback period provides a reality-check for what income investments will likely feel like. If you want to ignore what prices your securities fetch in the markets, you could be waiting a very long time to get paid back.
Payback periods were calculated for large-cap stocks in a prior article and are calculated here for midcap stocks. Payback period estimates depend on earnings growth and dividend payout ratios. Changes to dividend yield was projected by taking the minimum of the following:
- Earnings growth over the past five years
- Analyst estimates for earnings growth for the next five years
- Return on equity times the earnings reinvestment rate
The minimum of these dividend growth estimates was then used to estimate dividend growth for the next three years. Abnormal growth will not last forever, and analyst estimates, as informed as they are, are not predictive indefinitely. To address this limitation, a terminal 3% dividend growth rate was applied for every stock in the list after three years of projected growth rates. (Predicting economic growth many years out is impossible, and 3% seemed like a reasonable value.)
Payback Periods for Mid Cap, High Dividend Stocks | |||||||||
Ticker | Industry | Country | Div Yield | Payout Ratio | EPS growth past 5 years | EPS growth next 5 years | ROE x Reinvestment | ROE | Payback Period (Years) |
Wireless Communications | Israel | 16.1% | 98.3% | 20.8% | 9.1% | 5.9% | 338.8% | 5 | |
Diversified Investments | USA | 9.1% | 63.2% | 17.1% | 9.2% | 5.6% | 15.3% | 8 | |
Gas Utilities | USA | 10.2% | 9.9% | 4.0% | -0.3% | -0.3% | 8 | ||
Asset Management | USA | 10.7% | 1.7% | 13.3% | -158.1% | -158.1% | 8 | ||
Waste Management | France | 12.7% | -4.3% | 26.0% | -3.0% | -3.0% | 8 | ||
Oil & Gas Refining & Marketing | USA | 8.6% | 100.0% | 4.0% | 0.0% | 18950.0% | 9 | ||
Oil & Gas Pipelines | USA | 6.4% | 151.2% | 21.2% | 14.2% | -6.0% | 11.7% | 9 | |
Nonmetallic Mineral Mining | USA | 9.5% | 0.0% | 0.0% | 0.0% | 9 | |||
Diversified Communication Services | Argentina | 7.9% | 40.0% | 11.3% | 8.6% | 23.2% | 38.6% | 9 | |
Semiconductor Equipment & Materials | Taiwan | 8.6% | 17.3% | 0.0% | 9 | ||||
Oil & Gas Pipelines | USA | 7.8% | 2.9% | 4.6% | 0.0% | 10 | |||
NYB | Savings & Loans | USA | 7.9% | 86.6% | 2.2% | 6.0% | 1.2% | 9.1% | 10 |
Specialty Chemicals | Brazil | 5.6% | 41.1% | 12.8% | 9.8% | 16.6% | 11 | ||
Oil & Gas Pipelines | USA | 7.3% | 186.4% | 6.2% | 3.5% | -5.8% | 6.7% | 11 | |
Telecom Services - Domestic | USA | 13.3% | 402.9% | -16.1% | 0.5% | -18.5% | 6.1% | 11 | |
Independent Oil & Gas | USA | 7.4% | 1.6% | 10.8% | -15.6% | -15.6% | 11 | ||
Gas Utilities | USA | 6.6% | 178.3% | 20.6% | 9.4% | -16.6% | 21.2% | 12 | |
CHKM | Oil & Gas Refining & Marketing | USA | 5.5% | 0.0% | 17.4% | 8.0% | 5.9% | 5.9% | 12 |
Oil & Gas Pipelines | USA | 7.1% | -1.5% | 2.7% | -7.6% | -7.6% | 12 | ||
Oil & Gas Pipelines | USA | 5.8% | 103.1% | 23.1% | 6.5% | -0.4% | 11.4% | 12 | |
Industrial Metals & Minerals | USA | 7.3% | 129.6% | -1.9% | 4.0% | -6.4% | 21.8% | 12 | |
Business Services | USA | 6.3% | 166.3% | 19.1% | 11.0% | -4.3% | 6.5% | 12 | |
Oil & Gas Pipelines | USA | 6.3% | 108.2% | 5.8% | 4.2% | -0.8% | 9.6% | 12 | |
TCLP | Oil & Gas Pipelines | USA | 6.7% | 98.3% | 1.5% | 5.6% | 0.2% | 12.7% | 12 |
Agricultural Chemicals | USA | 6.4% | 141.4% | 22.1% | -40.4% | 97.4% | 12 | ||
Telecom Services - Domestic | USA | 8.4% | 185.2% | -7.1% | -0.1% | -32.0% | 37.6% | 12 | |
Nonmetallic Mineral Mining | USA | 4.6% | 61.8% | 12.8% | 14.0% | 23.1% | 60.6% | 13 | |
Industrial Metals & Minerals | USA | 4.9% | 43.5% | 10.9% | 10.6% | 20.9% | 37.1% | 13 | |
Electric Utilities | USA | 8.3% | 18.8% | -7.3% | 6.1% | 7.5% | 13 | ||
Electric Utilities | Bermuda | 5.5% | 47.9% | 54.3% | 6.0% | 12.1% | 23.1% | 13 | |
Independent Oil & Gas | Canada | 4.5% | 114.0% | 19.0% | 26.4% | -2.6% | 18.5% | 13 | |
Savings & Loans | USA | 7.2% | 99.0% | -3.6% | 15.2% | 0.0% | 4.7% | 13 | |
Savings & Loans | USA | 5.6% | 18.0% | 4.5% | -4.8% | -4.8% | 13 | ||
Oil & Gas Drilling & Exploration | USA | 5.8% | 4.1% | 8.0% | -7.5% | -7.5% | 13 | ||
Business Equipment | USA | 7.4% | 84.4% | -5.9% | -4.0% | 0.0% | 13 | ||
Wireless Communications | Portugal | 13.2% | 343.0% | -23.6% | -7.7% | -15.3% | 6.3% | 13 | |
Independent Oil & Gas | Canada | 5.9% | 173.9% | 21.3% | -12.7% | 17.2% | 13 | ||
Oil & Gas Pipelines | USA | 8.2% | 1561.9% | -8.0% | 4.3% | -8.2% | 0.6% | 13 | |
Semiconductor Equipment & Materials | Taiwan | 5.5% | 7.0% | 20.0% | 8.0% | 8.0% | 13 | ||
Oil & Gas Pipelines | USA | 6.7% | 234.2% | -3.1% | 34.1% | -400.5% | 298.5% | 14 | |
Asset Management | USA | 5.6% | 40.6% | 2.4% | 12.5% | 17.5% | 29.5% | 14 | |
Oil & Gas Pipelines | USA | 5.0% | 100.1% | 7.0% | 5.3% | 0.0% | 25.3% | 14 | |
Diversified Investments | USA | 4.5% | 54.9% | 44.2% | 10.6% | 3.8% | 8.5% | 14 | |
Semiconductor - Broad Line | Switzerland | 5.5% | 25.8% | 13.6% | 11.6% | 11.6% | 14 | ||
Oil & Gas Pipelines | USA | 4.9% | 31.8% | 6.8% | 0.0% | 14 | |||
Oil & Gas Pipelines | USA | 4.7% | 56.3% | 43.6% | 8.3% | 5.3% | 12.0% | 14 | |
Movie Production, Theaters | USA | 4.1% | 68.2% | 58.6% | 10.2% | 4.3% | 13.4% | 15 | |
Electric Utilities | China | 6.7% | 110.4% | -7.3% | -0.3% | -0.6% | 5.5% | 15 | |
Oil & Gas Pipelines | USA | 6.0% | 171.9% | -3.4% | 4.2% | -6.8% | 9.5% | 15 | |
Diversified Utilities | Canada | 5.4% | 112.6% | -0.8% | 25.5% | -1.3% | 10.0% | 15 | |
Insurance Brokers | USA | 4.3% | 97.2% | 30.7% | 9.3% | 0.4% | 13.4% | 16 | |
CATV Systems | USA | 4.0% | 55.1% | 18.8% | 0.0% | 16 | |||
Diversified Utilities | USA | 4.4% | 71.3% | 21.0% | 5.6% | 5.0% | 17.6% | 16 | |
Oil & Gas Pipelines | USA | 7.8% | 224.7% | -13.8% | 18.9% | -8.4% | 6.7% | 16 | |
Scientific & Technical Instruments | Cayman Islands | 4.5% | 62.9% | 15.7% | 4.1% | 8.2% | 22.0% | 16 | |
Oil & Gas Drilling & Exploration | Canada | 7.7% | 111.9% | -12.7% | 7.2% | -0.9% | 7.4% | 16 | |
Movie Production, Theaters | USA | 5.7% | -3.3% | 7.7% | 0.0% | 16 | |||
CATV Systems | Canada | 4.7% | 72.6% | 3.4% | 8.9% | 4.9% | 18.0% | 16 | |
Wireless Communications | Brazil | 4.8% | 19.3% | 68.5% | 0.5% | 21.5% | 26.6% | 16 | |
Diversified Utilities | USA | 4.7% | 73.6% | 3.3% | 6.0% | 2.1% | 8.1% | 16 | |
Oil & Gas Pipelines | USA | 6.1% | 162.0% | -9.3% | 9.0% | -5.9% | 9.5% | 17 | |
Electric Utilities | USA | 4.5% | 55.3% | 19.3% | 3.5% | 4.6% | 10.4% | 17 | |
Publishing - Periodicals | Netherlands | 4.7% | 70.3% | 5.1% | 4.4% | 11.8% | 39.7% | 17 | |
Electric Utilities | USA | 4.5% | 112.7% | 6.0% | 6.5% | -1.1% | 8.6% | 17 | |
Wireless Communications | South Korea | 5.3% | 48.8% | -4.8% | 1.4% | 12.2% | 23.8% | 17 | |
Electric Utilities | USA | 4.5% | 75.8% | 1.9% | 6.0% | 2.6% | 10.8% | 17 | |
Regional - Northeast Banks | USA | 5.8% | 79.7% | -7.0% | 6.6% | 2.3% | 11.4% | 17 | |
Diversified Utilities | USA | 4.8% | 92.4% | -1.8% | 5.6% | 0.6% | 8.5% | 17 | |
Personal Products | USA | 5.0% | 53.3% | -5.5% | 11.1% | 20.6% | 44.1% | 18 | |
Property & Casualty Insurance | USA | 5.5% | 164.2% | -7.4% | 5.0% | -2.1% | 3.3% | 18 | |
Diversified Utilities | USA | 4.1% | 8.5% | 6.0% | 13.7% | 13.7% | 18 | ||
Home Furnishings & Fixtures | USA | 5.1% | 88.1% | 0.5% | 13.8% | 1.5% | 12.5% | 18 | |
Diversified Utilities | USA | 4.2% | 56.6% | 40.2% | 6.0% | 4.9% | 11.3% | 18 | |
Diversified Utilities | USA | 4.6% | 64.5% | 1.2% | 4.3% | 3.7% | 10.4% | 18 | |
Gas Utilities | USA | 5.1% | 86.2% | -5.8% | 7.2% | 1.1% | 8.3% | 18 | |
Telecom Services - Foreign | Brazil | 4.8% | 0.0% | 9.6% | -3.0% | 3.5% | 3.5% | 18 | |
AGL | Gas Utilities | USA | 4.4% | 58.3% | 3.9% | 4.6% | 5.1% | 12.3% | 19 |
Oil & Gas Drilling & Exploration | USA | 4.0% | 304.1% | -0.1% | 7.0% | -9.7% | 4.7% | 19 | |
Electric Utilities | USA | 4.7% | 102.7% | -5.0% | 7.0% | -0.2% | 7.6% | 19 | |
Property & Casualty Insurance | USA | 5.6% | 69.4% | -9.7% | 7.7% | 3.2% | 10.4% | 19 | |
Oil & Gas Drilling & Exploration | Canada | 5.8% | 107.0% | -11.9% | -0.4% | 5.9% | 19 | ||
Diversified Utilities | USA | 4.1% | 101.8% | 0.2% | 6.6% | -0.1% | 6.4% | 21 | |
Savings & Loans | USA | 5.1% | 116.1% | -10.9% | 21.0% | -0.6% | 3.5% | 21 | |
Electric Utilities | USA | 5.5% | 126.6% | -20.2% | 3.3% | -1.2% | 4.5% | 25 | |
NZT | Telecom Services - Foreign | New Zealand | 7.1% | 193.3% | -31.7% | 8.4% | -6.3% | 6.8% | 29 |
Diversified Utilities | USA | 5.0% | 394.3% | -28.6% | 3.0% | -3.5% | 1.2% | >30 | |
Aluminum | Australia | 4.5% | 193.0% | -41.5% | 15.8% | -1.9% | 2.0% | >30 | |
Oil & Gas Pipelines | USA | 7.3% | -48.5% | 3.7% | -2.7% | -2.7% | >30 | ||
Oil & Gas Drilling & Exploration | Canada | 7.1% | 171.6% | -41.3% | 14.2% | -4.2% | 5.9% | >30 | |
Paper & Paper Products | Brazil | 4.1% | -19.1% | -14.6% | -19.9% | -19.9% | >30 | ||
Surety & Title Insurance | USA | 8.1% | -44.5% | 9.0% | -5.3% | -5.3% | >30 | ||
These rough estimates illustrate how long you might have to wait to get paid back. If you consider payback calculations useful, these calculations should help you realize how (very) long you will have to wait.
If you hate this metric, estimates of the payback period to show that—even for stocks with dividend yields above 4%–investors will often have to wait a long time to get paid back. These results should encourage lay people to consider other investment evaluation methods. It seems that investors can’t live on dividends alone.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: This article was written to provide investor information and education, and should not be construed as investment advice. I have no idea what your individual risk, time-horizon, and tax circumstances are: please seek the personal advice of a financial planner. This article uses third-party data and may contain approximations and errors. Please check estimates and data for yourself before investing.
