Yield on cost explained
Yield on cost is the yearly dividend you receive divided by the price you originally paid for the shares. It tells you what your own purchase is earning, rather than what a new buyer would earn today.
An example
You bought a stock at $50 when it paid $1.50 a year, a 3% yield. Ten years later it pays $3.00 a year. Your yield on cost is $3.00 divided by $50, or 6%, even if a new buyer at today's higher price earns a lower yield.
Why people like it
- It shows the effect of dividend growth on your own holdings.
- It helps you compare income against the money you put in.
- It is motivating for long-term investors watching their income rise.
Its limits
Yield on cost ignores what your shares are worth now. A high yield on cost on a stock that has barely moved may hide a better use of your money elsewhere, so compare it with the current yield and the total return.
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Frequently asked questions
How do I calculate yield on cost?
Divide your annual dividend per share by your original purchase price per share, then multiply by 100.
Is yield on cost the same as dividend yield?
No. Dividend yield uses today's share price. Yield on cost uses the price you paid.
Keep reading
- How dividend yield works
- Dividend growth investing: how it works
- DRIP: reinvesting dividends explained
General education only, not investment, tax or legal advice. Rules can differ by country and security.