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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)

CEL

Wireless Communications

Israel

16.1%

98.3%

20.8%

9.1%

5.9%

338.8%

5

ARCC

Diversified Investments

USA

9.1%

63.2%

17.1%

9.2%

5.6%

15.3%

8

NRGY

Gas Utilities

USA

10.2%

9.9%

4.0%

-0.3%

-0.3%

8

OZM

Asset Management

USA

10.7%

1.7%

13.3%

-158.1%

-158.1%

8

VE

Waste Management

France

12.7%

-4.3%

26.0%

-3.0%

-3.0%

8

BPT

Oil & Gas Refining & Marketing

USA

8.6%

100.0%

4.0%

0.0%

18950.0%

9

NGLS

Oil & Gas Pipelines

USA

6.4%

151.2%

21.2%

14.2%

-6.0%

11.7%

9

RNO

Nonmetallic Mineral Mining

USA

9.5%

0.0%

0.0%

0.0%

9

TEO

Diversified Communication Services

Argentina

7.9%

40.0%

11.3%

8.6%

23.2%

38.6%

9

UMC

Semiconductor Equipment & Materials

Taiwan

8.6%

17.3%

0.0%

9

NS

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

BAK

Specialty Chemicals

Brazil

5.6%

41.1%

12.8%

9.8%

16.6%

11

BWP

Oil & Gas Pipelines

USA

7.3%

186.4%

6.2%

3.5%

-5.8%

6.7%

11

FTR

Telecom Services - Domestic

USA

13.3%

402.9%

-16.1%

0.5%

-18.5%

6.1%

11

LINE

Independent Oil & Gas

USA

7.4%

1.6%

10.8%

-15.6%

-15.6%

11

APU

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

EEP

Oil & Gas Pipelines

USA

7.1%

-1.5%

2.7%

-7.6%

-7.6%

12

EPB

Oil & Gas Pipelines

USA

5.8%

103.1%

23.1%

6.5%

-0.4%

11.4%

12

NRP

Industrial Metals & Minerals

USA

7.3%

129.6%

-1.9%

4.0%

-6.4%

21.8%

12

RRD

Business Services

USA

6.3%

166.3%

19.1%

11.0%

-4.3%

6.5%

12

SEP

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

TNH

Agricultural Chemicals

USA

6.4%

141.4%

22.1%

-40.4%

97.4%

12

WIN

Telecom Services - Domestic

USA

8.4%

185.2%

-7.1%

-0.1%

-32.0%

37.6%

12

AHGP

Nonmetallic Mineral Mining

USA

4.6%

61.8%

12.8%

14.0%

23.1%

60.6%

13

ARLP

Industrial Metals & Minerals

USA

4.9%

43.5%

10.9%

10.6%

20.9%

37.1%

13

AT

Electric Utilities

USA

8.3%

18.8%

-7.3%

6.1%

7.5%

13

BIP

Electric Utilities

Bermuda

5.5%

47.9%

54.3%

6.0%

12.1%

23.1%

13

BTE

Independent Oil & Gas

Canada

4.5%

114.0%

19.0%

26.4%

-2.6%

18.5%

13

FNFG

Savings & Loans

USA

7.2%

99.0%

-3.6%

15.2%

0.0%

4.7%

13

HCBK

Savings & Loans

USA

5.6%

18.0%

4.5%

-4.8%

-4.8%

13

MWE

Oil & Gas Drilling & Exploration

USA

5.8%

4.1%

8.0%

-7.5%

-7.5%

13

PBI

Business Equipment

USA

7.4%

84.4%

-5.9%

-4.0%

0.0%

13

PT

Wireless Communications

Portugal

13.2%

343.0%

-23.6%

-7.7%

-15.3%

6.3%

13

PVX

Independent Oil & Gas

Canada

5.9%

173.9%

21.3%

-12.7%

17.2%

13

RGP

Oil & Gas Pipelines

USA

8.2%

1561.9%

-8.0%

4.3%

-8.2%

0.6%

13

SPIL

Semiconductor Equipment & Materials

Taiwan

5.5%

7.0%

20.0%

8.0%

8.0%

13

ETE

Oil & Gas Pipelines

USA

6.7%

234.2%

-3.1%

34.1%

-400.5%

298.5%

14

KKR

Asset Management

USA

5.6%

40.6%

2.4%

12.5%

17.5%

29.5%

14

MMP

Oil & Gas Pipelines

USA

5.0%

100.1%

7.0%

5.3%

0.0%

25.3%

14

NYX

Diversified Investments

USA

4.5%

54.9%

44.2%

10.6%

3.8%

8.5%

14

STM

Semiconductor - Broad Line

Switzerland

5.5%

25.8%

13.6%

11.6%

11.6%

14

SXL

Oil & Gas Pipelines

USA

4.9%

31.8%

6.8%

0.0%

14

WES

Oil & Gas Pipelines

USA

4.7%

56.3%

43.6%

8.3%

5.3%

12.0%

14

CNK

Movie Production, Theaters

USA

4.1%

68.2%

58.6%

10.2%

4.3%

13.4%

15

HNP

Electric Utilities

China

6.7%

110.4%

-7.3%

-0.3%

-0.6%

5.5%

15

PAA

Oil & Gas Pipelines

USA

6.0%

171.9%

-3.4%

4.2%

-6.8%

9.5%

15

TAC

Diversified Utilities

Canada

5.4%

112.6%

-0.8%

25.5%

-1.3%

10.0%

15

AJG

Insurance Brokers

USA

4.3%

97.2%

30.7%

9.3%

0.4%

13.4%

16

CVC

CATV Systems

USA

4.0%

55.1%

18.8%

0.0%

16

DPL

Diversified Utilities

USA

4.4%

71.3%

21.0%

5.6%

5.0%

17.6%

16

ETP

Oil & Gas Pipelines

USA

7.8%

224.7%

-13.8%

18.9%

-8.4%

6.7%

16

GRMN

Scientific & Technical Instruments

Cayman Islands

4.5%

62.9%

15.7%

4.1%

8.2%

22.0%

16

PGH

Oil & Gas Drilling & Exploration

Canada

7.7%

111.9%

-12.7%

7.2%

-0.9%

7.4%

16

RGC

Movie Production, Theaters

USA

5.7%

-3.3%

7.7%

0.0%

16

SJR

CATV Systems

Canada

4.7%

72.6%

3.4%

8.9%

4.9%

18.0%

16

TSU

Wireless Communications

Brazil

4.8%

19.3%

68.5%

0.5%

21.5%

26.6%

16

WR

Diversified Utilities

USA

4.7%

73.6%

3.3%

6.0%

2.1%

8.1%

16

BPL

Oil & Gas Pipelines

USA

6.1%

162.0%

-9.3%

9.0%

-5.9%

9.5%

17

DTE

Electric Utilities

USA

4.5%

55.3%

19.3%

3.5%

4.6%

10.4%

17

ENL

Publishing - Periodicals

Netherlands

4.7%

70.3%

5.1%

4.4%

11.8%

39.7%

17

PNW

Electric Utilities

USA

4.5%

112.7%

6.0%

6.5%

-1.1%

8.6%

17

SKM

Wireless Communications

South Korea

5.3%

48.8%

-4.8%

1.4%

12.2%

23.8%

17

TE

Electric Utilities

USA

4.5%

75.8%

1.9%

6.0%

2.6%

10.8%

17

VLY

Regional - Northeast Banks

USA

5.8%

79.7%

-7.0%

6.6%

2.3%

11.4%

17

VVC

Diversified Utilities

USA

4.8%

92.4%

-1.8%

5.6%

0.6%

8.5%

17

AVP

Personal Products

USA

5.0%

53.3%

-5.5%

11.1%

20.6%

44.1%

18

CINF

Property & Casualty Insurance

USA

5.5%

164.2%

-7.4%

5.0%

-2.1%

3.3%

18

CMS

Diversified Utilities

USA

4.1%

8.5%

6.0%

13.7%

13.7%

18

LEG

Home Furnishings & Fixtures

USA

5.1%

88.1%

0.5%

13.8%

1.5%

12.5%

18

LNT

Diversified Utilities

USA

4.2%

56.6%

40.2%

6.0%

4.9%

11.3%

18

SCG

Diversified Utilities

USA

4.6%

64.5%

1.2%

4.3%

3.7%

10.4%

18

TEG

Gas Utilities

USA

5.1%

86.2%

-5.8%

7.2%

1.1%

8.3%

18

TNE

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

EVEP

Oil & Gas Drilling & Exploration

USA

4.0%

304.1%

-0.1%

7.0%

-9.7%

4.7%

19

HE

Electric Utilities

USA

4.7%

102.7%

-5.0%

7.0%

-0.2%

7.6%

19

MCY

Property & Casualty Insurance

USA

5.6%

69.4%

-9.7%

7.7%

3.2%

10.4%

19

PWE

Oil & Gas Drilling & Exploration

Canada

5.8%

107.0%

-11.9%

-0.4%

5.9%

19

NI

Diversified Utilities

USA

4.1%

101.8%

0.2%

6.6%

-0.1%

6.4%

21

PBCT

Savings & Loans

USA

5.1%

116.1%

-10.9%

21.0%

-0.6%

3.5%

21

POM

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

AEE

Diversified Utilities

USA

5.0%

394.3%

-28.6%

3.0%

-3.5%

1.2%

>30

AWC

Aluminum

Australia

4.5%

193.0%

-41.5%

15.8%

-1.9%

2.0%

>30

CPNO

Oil & Gas Pipelines

USA

7.3%

-48.5%

3.7%

-2.7%

-2.7%

>30

ERF

Oil & Gas Drilling & Exploration

Canada

7.1%

171.6%

-41.3%

14.2%

-4.2%

5.9%

>30

FBR

Paper & Paper Products

Brazil

4.1%

-19.1%

-14.6%

-19.9%

-19.9%

>30

ORI

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.

Source: Mid-Cap Stocks Paying High Dividends: Waiting For Payback