Glossary term
Yield on Cost (YOC)
Yield on cost measures current annual dividend income as a percentage of the investor's original cost basis.
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What Is Yield on Cost?
Yield on cost, or YOC, measures current annual dividend income as a percentage of the investor's original cost basis. It shows how much income the original investment now produces relative to the price the investor paid.
Dividend investors often use YOC to track how dividend growth has changed the income return on their initial capital. It can be motivating, but it can also mislead if it distracts from current yield, valuation, risk, and total return.
Key Takeaways
- Yield on cost compares current annual dividends with original cost basis.
- It can rise when a company increases its dividend over time.
- It is different from current dividend yield, which uses the current market price.
- A high YOC does not mean the stock is attractive today.
- Investors should pair YOC with current yield, dividend safety, valuation, and total return.
How Yield on Cost Is Calculated
The basic formula compares current annual dividend income with the investor's original cost.
Current annual dividend is the dividend income the position is expected to pay over a year. Original cost basis is what the investor paid for the shares, adjusted as needed for additional purchases, reinvested dividends, splits, or other basis changes.
Yield on Cost Versus Current Yield
Metric | Denominator | What It Shows |
|---|---|---|
Yield on cost | Original cost basis | Income return on the investor's purchase price |
Current dividend yield | Current market price | Income return available at today's price |
Total return | Investment value over time | Price change plus income |
Investor Context
Yield on cost can be useful for understanding the income benefit of holding a dividend grower for many years. If a stock was purchased at a low cost and the dividend later rises, the investor's income relative to the original purchase price can become large.
That historical perspective can help evaluate whether dividend growth is working. It can also help retirees understand how a long-held position contributes to cash flow.
Where YOC Can Mislead
The main risk is anchoring. A high yield on cost may feel impressive, but the investor cannot reinvest today at the old purchase price. The relevant decision is whether keeping the stock is better than the alternatives available now.
A stock can have a high YOC and still be overvalued, risky, or weak in total return. Dividend cuts can also reduce YOC quickly. Investors should review payout ratio, cash flow, debt, business quality, valuation, taxes, and concentration risk.
YOC can be emotionally powerful because it rewards patience on paper. The danger is using an old purchase price to avoid asking whether the current capital could earn a better risk-adjusted return elsewhere.
The Bottom Line
Yield on cost shows the current dividend income generated by an investor's original cost basis. It is useful for tracking dividend growth on a long-held position, but it should not replace current valuation, dividend safety, and total-return analysis.