Yield on Cost
Yield on cost is your annual dividend income divided by your original purchase price, not the current market price. It shows the yield on the money you actually invested.
Why It's Different from Current Yield
Current yield uses today's share price. Yield on cost uses what you paid. If you bought SCHD at $50/share and it now pays $2.80/year in dividends, your current yield might be 3.4% (based on today's $82 price), but your yield on cost is 5.6% ($2.80 ÷ $50).
Why Long-Term Investors Love It
YOC rewards patience. As dividends grow over time and your cost basis stays fixed, your yield on cost increases. Investors who bought quality dividend growers 10-15 years ago may have a YOC of 8-10% on positions where the current yield is only 3%. This is the tangible result of dividend growth compounding on a fixed cost basis.
The Criticism
Some argue YOC is misleading because it ignores opportunity cost. Your money could be redeployed at today's prices into different investments. A high YOC on an old position doesn't mean it's the best use of that capital going forward. Both perspectives have merit. YOC is a measure of past success, not a forward-looking recommendation.
Related Terms
DRIP (Dividend Reinvestment Plan)
DRIP means automatically reinvesting your dividend payments to purchase additional shares of the same investment, instead of receiving the cash.
Dividend Growth Rate
Dividend growth rate is the annualized percentage increase in an ETF's or stock's dividend payments over a specific period, typically measured over 3, 5, or 10 years.
This tool is for educational and informational purposes only. It does not constitute financial advice. Past performance does not guarantee future results. Consult a qualified financial advisor for personalized advice.