Small Cap Dividend Stocks: Waiting For Payback

Payback periods were calculated for large cap stocks in prior articles and are calculated here for small cap stocks with dividend yields exceeding Treasury yields. 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% seemed like a reasonable value.) Small... Read more