Payback Period - Buy Stocks with Increasing Dividends

Assume you bought a dividend-paying stock that paid a 2% dividend yield at the time of purchase and you elected to reinvest all future dividends. How long would it take you to recover your initial investment just from the accumulation of reinvested dividends? The following table shows that the payback period depends on the rate of the dividend increase each year.

If the annual dividends remained unchanged, you would recover your initial investment in 36 years. If the dividends increased 10% each year, you would get your original investment back in 16 years. Note: These data are only for a starting dividend yield of 2% A higher initial yield would shorten the payback period and a lower yield would lengthen it.

Number of Years to Payback Investment with Dividends
Annual Dividend Increase (%)	Number of Years
0%	36
1%	31
2%	27
3%	25
4%	23
5%	21
6%	20
7%	19
8%	18
9%	17
10%	16

Obviously these examples of constant dividend increases over time would not occur for real stocks. Actual dividends for a stock increase at different rates over a period of years. And they can go down as well as up. So the figures in the table are used to show the general principle that increasing dividends are a good deal for investors.