GLOSSARY // General Investing
Yield on Cost
Yield on cost divides a stock's current annual dividend by the price you originally paid, rather than by today's price. Hold a dividend grower long enough and the two yields diverge dramatically — the position pays an ever-larger percentage of the capital you actually invested, even while new buyers see an ordinary current yield.
The number is real but its main use is motivational, not analytical. Yield on cost measures a decision you already made; it cannot inform the decision in front of you. Whether to hold or sell depends on what the position earns from here versus alternatives — and on that question, today's price and today's yield are the only inputs that matter. A 12% yield on cost does not make the stock a better hold than a different stock yielding more on current price.
Where it earns its keep is illustrating compounding for income investors: it is the cleanest way to show what a decade of dividend growth does to the cash return on an original investment, especially with reinvestment stacking shares on top.
You bought shares at $50 when the dividend was $1.50 (a 3% yield). Ten years later the dividend has grown to $3.00 and the stock trades at $100. Current yield is still $3.00 / $100 = 3%, but yield on cost is $3.00 / $50 = 6% — every year the position now pays back 6% of what you originally put in.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.