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.
Payback periods were calculated for large-cap, mid-cap, and small-cap stocks in prior articles and are calculated here for micro-cap stocks with dividend yields exceeding 4%. Payback period estimates depend on earnings growth and dividend payout ratios. Changes to dividend yield were 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 measures 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% seems like a reasonable value.)
Beaten industries like shipping and real estate are overrepresented in a list of microcap tickers with payback periods shorter than 30 years:
| Payback Periods for Small 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) |
| SBLK | Shipping | Greece | 15.8% | 90.3% | 40.4% | 0.4% | 4.3% | 3 | |
| BALT | Shipping | USA | 8.9% | 32.0% | 0.0% | 5 | |||
| CPLP | Shipping | Greece | 15.1% | 43.1% | 63.6% | 5.0% | 12.9% | 22.6% | 5 |
| UVE | Property & Casualty Insurance | USA | 9.0% | 38.7% | 36.3% | 11.9% | 19.4% | 5 | |
| TICC | Asset Management | USA | 11.2% | 101.5% | 14.1% | 15.0% | -0.2% | 11.3% | 6 |
| GNI | Steel & Iron | USA | 12.3% | 91.7% | 2.1% | 15.5% | 186.6% | 7 | |
| LPHI | Life Insurance | USA | 13.7% | 64.9% | 61.2% | -3.8% | 16.1% | 45.9% | 7 |
| MNI | Publishing - Newspapers | USA | 31.3% | -31.3% | 5.0% | 0.0% | 7 | ||
| ARI | REIT - Diversified | USA | 11.6% | 138.3% | 0.0% | 10.0% | -2.5% | 6.6% | 8 |
| HRZN | Asset Management | USA | 11.1% | 0.0% | 5.0% | 0.0% | 8 | ||
| ISH | Shipping | USA | 8.3% | 26.5% | 26.3% | 11.7% | 16.0% | 8 | |
| WHX | Oil & Gas Drilling & Exploration | USA | 16.8% | -16.3% | 0.0% | 8 | |||
| CLCT | Business Services | USA | 8.9% | 191.8% | 12.9% | 20.0% | -19.3% | 21.0% | 9 |
| EFC | Mortgage Investment | USA | 9.2% | 189.5% | 0.0% | -5.7% | 6.4% | 9 | |
| GSJK | Oil & Gas Equipment & Services | USA | 10.3% | 156.4% | 0.0% | 0.0% | 9 | ||
| STAG | REIT - Industrial | USA | 9.9% | 0.0% | 5.0% | 0.0% | 9 | ||
| TCRD | Investment Brokerage - Regional | USA | 9.4% | 98.9% | 0.0% | 50.0% | 0.1% | 8.0% | 9 |
| AMID | Gas Utilities | USA | 8.6% | 0.0% | 4.6% | 0.0% | 10 | ||
| ARCP | Real Estate Development | USA | 8.5% | 0.0% | 10 | ||||
| CDR | REIT - Retail | USA | 10.7% | -8.1% | 54.1% | -6.1% | -6.1% | 10 | |
| CSA | REIT - Healthcare Facilities | USA | 10.1% | 0.0% | -5.9% | -63.5% | -63.5% | 10 | |
| KED | Asset Management | USA | 7.6% | 30.9% | 15.3% | 3.0% | 14.1% | 20.3% | 10 |
| NGPC | Diversified Investments | USA | 9.9% | -5.6% | 11.0% | -8.2% | -8.2% | 10 | |
| ALSK | Telecom Services - Domestic | USA | 16.6% | -25.2% | 9.0% | 0.0% | 11 | ||
| LSE | REIT - Office | USA | 6.6% | 4.4% | 8.5% | -11.4% | -11.4% | 11 | |
| MTGE | REIT - Diversified | USA | 7.8% | 0.0% | 5.0% | 0.0% | 11 | ||
| NRT | Diversified Investments | USA | 8.4% | 99.7% | -1.6% | 85.2% | 31571.4% | 11 | |
| NYMT | REIT - Residential | USA | 14.3% | 111.7% | -18.6% | 2.0% | -1.2% | 10.4% | 11 |
| TNK | Shipping | Bermuda | 18.2% | -26.9% | 6.5% | 0.0% | 0.0% | 11 | |
| CFNB | Regional - Pacific Banks | USA | 6.8% | 2.3% | 5.8% | 5.8% | 12 | ||
| GAIN | Diversified Investments | USA | 8.2% | 33.3% | -5.1% | 7.0% | 11.7% | 17.6% | 12 |
| INTX | Consumer Services | USA | 6.6% | 55.4% | 2.9% | 10.0% | 8.4% | 18.7% | 12 |
| NNA | Shipping | Greece | 6.9% | 0.0% | 0.0% | 12 | |||
| OTT | Long Distance Carriers | USA | 11.0% | 343.7% | -16.0% | 0.0% | 12 | ||
| PETS | Drug Delivery | USA | 5.3% | 62.3% | 13.1% | 13.4% | 7.3% | 19.4% | 12 |
| TIS | Paper & Paper Products | USA | 5.3% | 51.0% | 20.3% | 3.1% | 6.3% | 12 | |
| CCG | REIT - Residential | USA | 6.6% | 0.0% | 0.0% | 13 | |||
| CLDT | REIT - Hotel/Motel | USA | 6.5% | 0.0% | 12.0% | -1.7% | -1.7% | 13 | |
| CSFS | Credit Services | Canada | 6.5% | 0.0% | 0.0% | 13 | |||
| FHCO | Personal Products | USA | 4.5% | 86.5% | 97.2% | 6.7% | 50.1% | 13 | |
| PCC | REIT - Industrial | USA | 8.8% | 144.0% | -11.8% | -1.4% | 3.2% | 13 | |
| TAXI | Credit Services | USA | 6.5% | 63.3% | 10.4% | 10.0% | 4.1% | 11.1% | 13 |
| TTO | Asset Management | USA | 5.4% | 30.3% | 11.7% | 7.0% | 9.0% | 13.0% | 13 |
| UMH | REIT - Diversified | USA | 7.6% | 237.0% | -6.7% | -8.8% | 6.5% | 13 | |
| WHG | Asset Management | USA | 4.1% | 95.4% | 19.1% | 1.1% | 23.2% | 13 | |
| WSTG | Computers Wholesale | USA | 5.2% | 60.0% | 10.2% | 22.0% | 7.6% | 19.0% | 13 |
| XIN | Residential Construction | China | 5.6% | 15.6% | 5.0% | 17.5% | 17.5% | 13 | |
| ATAX | Mortgage Investment | USA | 9.8% | 530.9% | -15.9% | 10.0% | -9.0% | 2.1% | 14 |
| BCBP | Regional - Northeast Banks | USA | 4.7% | 27.5% | 11.3% | 15.9% | 21.9% | 14 | |
| BONT | Department Stores | USA | 7.1% | 21.1% | -6.6% | 18.0% | 7.1% | 9.1% | 14 |
| CHEV | Regional - Midwest Banks | USA | 5.8% | 0.2% | 3.7% | 3.7% | 14 | ||
| FORTY | Business Software & Services | Israel | 4.3% | 90.3% | 21.8% | 21.8% | 14 | ||
| HTCO | Telecom Services - Domestic | USA | 5.2% | 72.7% | 6.9% | 3.8% | 6.4% | 23.5% | 14 |
| IDT | Diversified Communication Services | USA | 7.1% | 82.9% | 19.9% | 2.0% | 11.9% | 14 | |
| NBTF | Regional - Southeast Banks | USA | 6.1% | 14.8% | 0.0% | 14 | |||
| QCCO | Savings & Loans | USA | 5.2% | 28.8% | 22.7% | 18.0% | 11.5% | 16.2% | 14 |
| WWVY | Telecom Services - Domestic | USA | 8.0% | -11.5% | -3.8% | -3.8% | 14 | ||
| ACNB | Regional - Southwest Banks | USA | 5.4% | 53.0% | 2.9% | 4.2% | 9.0% | 15 | |
| CRT | Oil & Gas Drilling & Exploration | USA | 6.2% | 100.0% | -3.8% | 0.0% | 125.0% | 15 | |
| DDIC | Printed Circuit Boards | USA | 4.4% | 41.3% | 66.8% | 15.0% | 12.5% | 21.3% | 15 |
| GAIA | Catalog & Mail Order Houses | USA | 4.2% | 18.9% | 10.0% | -0.1% | -0.1% | 15 | |
| HIMX | Semiconductor - Specialized | Taiwan | 11.3% | 0.0% | -22.8% | 15.0% | 4.8% | 4.8% | 15 |
| LCNB | Regional - Mid-Atlantic Banks | USA | 5.0% | 55.8% | 6.0% | 4.7% | 10.6% | 15 | |
| MSW | REIT - Office | USA | 6.8% | 168.5% | -7.6% | -3.5% | 5.0% | 15 | |
| NWFL | Regional - Northeast Banks | USA | 4.8% | 49.0% | 6.6% | 4.7% | 9.2% | 15 | |
| CBK | Apparel Stores | USA | 8.7% | -18.1% | 15.0% | -21.5% | -21.5% | 16 | |
| CIZN | Regional - Northeast Banks | USA | 5.2% | -1.3% | 0.0% | 16 | |||
| CNAF | Regional - Midwest Banks | USA | 4.8% | 44.8% | 14.2% | 6.6% | 12.0% | 16 | |
| DOM | Diversified Investments | USA | 9.8% | 101.5% | -21.6% | -0.7% | 48.4% | 16 | |
| FNLC | Regional - Northeast Banks | USA | 5.6% | 69.1% | -3.3% | 2.6% | 8.3% | 16 | |
| HARL | Regional - Northeast Banks | USA | 5.2% | 5.9% | 0.0% | 16 | |||
| MTR | Diversified Investments | USA | 6.9% | 100.0% | -9.1% | 0.0% | 92.3% | 16 | |
| OLP | REIT - Retail | USA | 8.0% | 163.4% | -13.9% | 11.1% | -3.5% | 5.6% | 16 |
| ONFC | Savings & Loans | USA | 5.3% | -0.7% | 0.0% | 16 | |||
| PWOD | Regional - Mid-Atlantic Banks | USA | 5.0% | 59.7% | 0.8% | 6.2% | 15.4% | 16 | |
| RIMG | Computer Peripherals | USA | 6.1% | -6.2% | 10.0% | 0.0% | 16 | ||
| TESS | Electronics Wholesale | USA | 4.3% | 27.5% | 19.0% | 15.0% | 11.2% | 15.5% | 16 |
| UG | Personal Products | USA | 4.6% | 69.0% | 8.6% | 9.8% | 31.7% | 16 | |
| UNB | Regional - Northeast Banks | USA | 5.3% | 90.9% | -1.8% | 1.1% | 11.7% | 16 | |
| VALU | Asset Management | USA | 6.8% | 69.1% | 10.0% | 42.2% | 136.8% | 16 | |
| WRLS | Wireless Communications | USA | 6.1% | 148.8% | -6.2% | -3.0% | 6.1% | 16 | |
| ADC | Property Management | USA | 6.7% | 522.8% | -11.5% | 21.6% | -8.2% | 1.9% | 17 |
| ALNC | Regional - Northeast Banks | USA | 4.2% | 43.8% | 3.9% | 7.0% | 5.3% | 9.4% | 17 |
| AMSWA | Application Software | USA | 4.3% | 101.2% | 7.1% | 19.0% | -0.1% | 11.3% | 17 |
| AROW | Regional - Northeast Banks | USA | 4.3% | 52.8% | 4.4% | 6.9% | 6.4% | 13.5% | 17 |
| ARTNA | Water Utilities | USA | 4.3% | 84.4% | 4.2% | 5.0% | 1.0% | 6.1% | 17 |
| BDGE | Regional - Northeast Banks | USA | 4.7% | 63.5% | -1.1% | 4.7% | 12.8% | 17 | |
| CCNE | Regional - Northeast Banks | USA | 4.5% | 57.4% | 1.2% | 4.9% | 11.4% | 17 | |
| DEST | Apparel Stores | USA | 4.9% | 28.0% | 8.2% | 12.0% | 22.3% | 31.0% | 17 |
| JCS | Communication Equipment | USA | 4.4% | 40.2% | 17.0% | 8.2% | 13.7% | 17 | |
| NHTB | Savings & Loans | USA | 4.6% | 39.7% | 0.0% | 4.5% | 7.5% | 17 | |
| RMCF | Confectioners | USA | 4.5% | 63.0% | 1.4% | 8.6% | 23.3% | 17 | |
| WSR | REIT - Diversified | USA | 9.6% | 1250.8% | -22.1% | -8.9% | 0.8% | 17 | |
| BFIN | Savings & Loans | USA | 5.0% | 9.9% | -2.8% | -2.8% | 18 | ||
| EGAS | Gas Utilities | USA | 4.9% | 70.5% | -3.3% | 3.0% | 10.0% | 18 | |
| KCAP | Diversified Investments | USA | 11.1% | 722.8% | -27.6% | 15.0% | -6.8% | 1.1% | 18 |
| MBVT | Regional - Northeast Banks | USA | 4.0% | 49.0% | 6.0% | 5.0% | 6.6% | 13.0% | 18 |
| NKSH | Regional - Mid-Atlantic Banks | USA | 4.0% | 39.8% | 5.0% | 7.3% | 12.1% | 18 | |
| TSH | Savings & Loans | USA | 4.3% | 41.2% | 1.9% | 5.5% | 9.3% | 18 | |
| AHC | Publishing - Newspapers | USA | 5.4% | 0.0% | -52.9% | -52.9% | 19 | ||
| AMNB | Regional - Mid-Atlantic Banks | USA | 4.9% | 69.2% | -5.7% | 2.1% | 6.8% | 19 | |
| FRD | Steel & Iron | USA | 5.1% | 73.4% | 5.9% | 4.0% | 15.1% | 19 | |
| KFFB | Savings & Loans | USA | 4.6% | 60.6% | 3.8% | 1.2% | 3.2% | 19 | |
| OVBC | Regional - Midwest Banks | USA | 4.8% | 58.2% | -4.9% | 3.5% | 8.3% | 19 | |
| AUBN | Regional - Southeast Banks | USA | 4.1% | 56.1% | -2.8% | 3.7% | 8.5% | 20 | |
| CFFI | Regional - Mid-Atlantic Banks | USA | 5.0% | -7.8% | 0.0% | 20 | |||
| CHKE | Textile - Apparel Clothing | USA | 6.2% | 117.3% | -16.0% | 2.0% | -8.1% | 47.0% | 20 |
| FCAP | Savings & Loans | USA | 4.1% | 1.4% | 0.0% | 20 | |||
| FUR | REIT - Diversified | USA | 7.2% | 80.4% | -20.2% | 0.4% | 1.4% | 7.3% | 20 |
| GCBC | Savings & Loans | USA | 4.0% | 68.1% | -1.6% | 3.7% | 11.5% | 20 | |
| PULB | Savings & Loans | USA | 5.5% | -11.6% | 5.0% | 0.0% | 20 | ||
| SGC | Textile - Apparel Clothing | USA | 4.5% | 74.2% | 30.8% | 1.8% | 7.0% | 20 | |
| SR | Office Supplies | USA | 8.2% | 47.5% | -24.1% | 7.5% | 10.8% | 20.6% | 20 |
| UTL | Diversified Utilities | USA | 5.1% | 131.1% | -10.3% | 1.9% | -2.0% | 6.3% | 20 |
| UVSP | Regional - Northeast Banks | USA | 5.6% | -13.1% | 10.0% | 0.0% | 20 | ||
| EMCI | Property & Casualty Insurance | USA | 4.2% | -5.3% | 5.0% | -0.2% | -0.2% | 21 | |
| GOOD | Property Management | USA | 9.0% | 1204.1% | -26.9% | 2.0% | -10.9% | 1.0% | 21 |
| MSEX | Water Utilities | USA | 4.1% | 82.6% | 6.0% | -5.0% | 1.4% | 7.9% | 21 |
| AI | Investment Brokerage - Regional | USA | 16.4% | 147.7% | 24.2% | -4.1% | 8.6% | 22 | |
| DGAS | Gas Utilities | USA | 4.2% | 77.1% | 4.1% | 4.0% | 2.2% | 9.8% | 22 |
| EPAX | Education & Training Services | USA | 5.6% | 106.3% | -16.8% | 12.5% | -0.3% | 4.3% | 22 |
| ESCA | Sporting Goods | USA | 5.2% | 99.2% | -14.1% | 0.0% | 5.2% | 22 | |
| RAS | REIT - Diversified | USA | 5.2% | -14.7% | 13.5% | -1.0% | -1.0% | 22 | |
| NPD | Drug Stores | China | 11.9% | 0.0% | -36.7% | 10.2% | 3.0% | 3.0% | 23 |
| BWL-A | Sporting Activities | USA | 5.0% | 219.9% | -15.7% | -5.1% | 4.3% | 24 | |
| TNP | Shipping | Greece | 9.8% | -34.3% | -3.7% | -3.7% | 24 | ||
| WIBC | Regional - Midwest Banks | USA | 6.6% | -24.4% | 8.0% | -35.5% | -35.5% | 24 | |
| DDE | Gaming Activities | USA | 5.6% | 104.9% | -22.0% | -0.2% | 3.3% | 26 | |
| DHT | Shipping | Channel Islands | 11.3% | -40.6% | 8.0% | -18.9% | -18.9% | 27 | |
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 long you will have to wait. This table allows you to ask questions like: "Do I really want to hold onto volatile shipping companies for X years?"
There are reasons why financial professionals hate the payback period. 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 price you would reap upon reselling the stock.
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. (Moreover, holding a distressed stock for even a few years can seem like an eternity!) These results should encourage laypeople to consider other investment evaluation methods. For nearly all stocks, it seems that investors can't live on dividends alone.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
