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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.

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.

Source: Micro Cap, High Dividend Stocks: Waiting for Payback