What is yield on cost?
In one line: Yield on cost is a stock's current yearly dividend per share divided by the price you originally paid per share, shown as a percent.
The formula
Yield on cost = this year's dividend per share ÷ the price you paid per share.
Regular Dividend yield uses today's price. Yield on cost uses your price, from the day you bought. When a company raises its dividend over the years, your yield on cost climbs, even if the stock's normal yield stays the same.
If you bought at several prices, use your average cost per share.
An example (hypothetical)
You bought shares of a made-up company at $40 each. Back then it paid $1.00 a share a year, a yield of 2.5%.
Ten years later, the company pays $2.00 a share a year. The stock now trades at $80.
- Yield on cost: $2.00 ÷ $40 = 5%.
- Today's yield: $2.00 ÷ $80 = 2.5%.
Both numbers are true. They answer different questions. Yield on cost says how the dividend has grown against your original money. Today's yield says what a new buyer gets for each dollar they put in today. That's also what you get for each dollar you leave in.
Now say the company cuts its dividend in half, to $1.00. Your yield on cost falls straight back to 2.5% ($1.00 ÷ $40). A high yield on cost is only as solid as the dividend behind it. Check the Payout ratio before you trust it.
Why it can mislead you
Yield on cost feels great, and that's the problem. A 5% yield on cost can make a stock feel too good to sell. But your $80 shares could be sold and put somewhere else today. What matters for that choice is what each $80 earns from here, not what $40 earned in the past.
So use it as a scorecard, not a steering wheel:
- Good for: seeing how much a dividend has grown since you bought.
- Not good for: deciding whether to buy more, hold or sell. For that, look at today's yield, the business, and Total return.
Our dividend growth rate and yield on cost calculator works out both on your own numbers.
Where it fits
Yield on cost is one of a handful of dividend numbers. The others are covered in dividend investing explained. If you also sell covered calls on long-held shares, the same rule applies: judge each new trade on today's price, not your old one. The wheel strategy explains how.
Questions
Is a high yield on cost good?
It means the dividend has grown a lot since you bought. That's a good record. It doesn't tell you whether the stock is a good buy or hold today.
Does yield on cost include reinvested dividends?
Use your average cost per share. If you reinvest, the new shares are bought at later prices, which usually raises your average cost and lowers the figure a little.
Should I sell a stock with a low yield on cost?
Not because of that number alone. Judge the stock on today's yield, the business and your plan, not on what you paid.
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