Yield on Cost Definition
Yield on cost was made popular by the Seeking Alpha dividend growth investing contributors. Yield on cost is an investment's annual dividend divided by the original purchase price of the investment. It’s the dividend as a percentage of how much you originally paid for the investment, rather than its current price.
How to Calculate Yield on Cost
Divide the stock's annual dividend by the cost per share and multiple the resulting number by 100 (to arrive at a percentage).
Why yield on cost matters
Yield on cost is a useful tool for dividend growth investors, who aim to maximize their future dividends. That means picking stocks which combine healthy dividend yields plus strong dividend growth. Yield on cost is a tool which allows dividend growth investors to evaluate the performance of a stock in terms of this combination of dividend yield and dividend growth, and to compare stocks based on this performance.
Yield on cost is backward-looking
Yield on cost answers for the dividend growth investor the question “How successful was this stock pick?”, by showing how much the dividend yield has grown relative to the price the investor paid for the stock. But it shouldn’t be used to justify holding on to a stock, unless the investor thinks the stock will continue to grow its dividend.
How our Yield on Cost chart works
Our yield on cost chart shows the stock’s yield on cost depending on when the investor purchased the stock. The horizontal axis shows how long ago the investor purchased the stock, starting with zero years (which means you just purchased it) to five years (which means you purchased it five years ago). The vertical axis shows the yield on cost calculated for the stock price at each possible purchase date in that date range. If you mouse over the chart line at any point on the desktop website, you can see the price the stock was trading at at that date.
What to look for
A successful dividend growth investment should have increasing yield on cost as you go further back in time, as the company continually raises its dividend. So the line in the chart should generally be upward sloping.
More about yield on cost
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