One of the advantages of investing in shares is that they can pay dividends, which can add up and potentially pay for your original investment.
How long this takes depends on several factors, but there are examples of relatively short payback periods when dividends have grown at a healthy clip.
Which UK companies have the shortest potential payback?
Paragon Banking
Specialist buy-to-let and commercial lender Paragon Banking is the only company on the list which has a potential payback of less than a decade, based on its 7% yield and double-digit growth.
The company raised its dividend by 11% in the first half of 2026 and reconfirmed its full year outlook.
While the dividend looks well-supported by earnings, and Paragon has a long history of paying dividends, it is worth noting that it is a cyclical business, and sensitive to economic weakness and falling credit quality.
Legal and General – rebuilding dividend cover
Insurer Legal and General has a potential payback of just under 12 years and has one of the highest dividend yields in the FTSE 100.
The board has said it expects earnings to grow faster than dividends over the next couple of years to rebuild dividend cover (the amount that earnings per share cover dividends per share).
This means limiting dividend growth to around 2% a year compared with high-single digit earnings growth and an ambition to return more than £5bn to shareholders share buybacks between 2025 and 2027.
Imperial Brands – reducing the share count
Tobacco company Imperial Brands has a progressive dividend policy and a target to grow annual adjusted earnings per share by high single digits, supported by share buybacks.
Imperial has reduced its issued share capital by more than 21% since beginning its current buyback programme in October 2022. Fewer shares mean earnings can grow per share even when total profit grows more slowly.
The ability to raise prices helps to offset declining cigarette sales, while advertising bans reduces the need for big expenditures, boosting cash flows.
Morgan Sindal
Construction and regeneration firm Morgan Sindal has a dividend yield of 4% which is comfortably covered by earnings per share, in line with the board’s policy of maintaining a dividend cover of between 2 and 2.5 times.
The company’s progressive dividend policy is supported by a net cash position on the balance sheet.
First half pre-tax profit increased 21% and the company raised its dividend by 10% to 55p per share, while reiterating full year guidance.
Its refurbish and fitout business Overbury and Morgan Lovell is expected to deliver profits slightly above the top end of its target range while the partnership housing business is anticipated to see a slight reduction in operating profits, compared with the prior year.
It’s worth bearing in mind that Morgan Sindal operates in cyclical industries and construction cash flows can be ‘lumpy’, so it is important not to extrapolate periods of strong profit growth.
How did we create the short list?
We have narrowed the universe of the UK’s largest companies to those which have regularly paid a dividend over the last decade or more and have grown the dividend in at least five years.
In addition, to calculate the payback we have used a dividend growth rate which is a blended average of the past one, three, and 10 years, giving most weight to the three-year growth rate.
To be conservative, in situations where dividends have grown fast like Paragon Banking, HSBC and XPS Pensions, we have capped the expected growth rate at 10% a year.
It is worth noting that share prices can fall which reduces any gains made from dividend income.
Case study
Let’s look at Games Workshop, the FTSE 100 fantasy miniatures retailer. In early 2019 the shares were trading around £30 and had a dividend yield of 3% (dividend as a percentage of the share price).
A £1,000 investment would have provided an annual dividend income of around £30, which means in theory it would take around 33 years for future dividends to payback the original investment, assuming they are not cut.
However, Games Workshop has reliably grown its dividends over time, so we need to take that onto account. Since 2019, it has paid cumulative dividends of £29.60 per share, meaning an investor who bought the shares back then has received roughly their entire original investment through dividends alone.
While this is a positive outcome, it is worth noting that dividends are discretionary payments which can be reduced or omitted with little notice. Even the most consistent dividend payers trimmed their dividend during the pandemic.
High dividend yields can indicate the market believes dividends are not sustainable.
For example, insurer Lancashire has one of the highest yields in the market, but this is based on the company returning substantial amounts of surplus capital via one-off dividends, which is not guaranteed to be repeated.
The importance of reinvesting dividend income
Reinvesting dividends is one of the most important principles in investing, which helps to compound investment returns. Compounding is a type of ‘multiplying effect’ created by using dividend income to purchase new shares, which in turn grows future dividend income, creating a powerful feedback loop.
Martin Gamble: Shares and Markets Writer
Martin Gamble is Shares and Markets writer at AJ Bell. He was previously the Education Editor of Shares Magazine. He has been with the business since 2019.
Martin graduated from the University of Kent in...