Yield on Cost Calculator

What Is yield on cost calculator?

A yield on cost calculator is a specialized financial tool designed to measure the dividend yield of an investment relative to its original purchase price, rather than its current market value. While most financial news outlets report the "current yield"—which is the annual dividend divided by the current stock price—long-term investors often find the yield on cost (YOC) to be a far more meaningful metric for tracking personal wealth growth. Yield on cost reflects the actual income return you are receiving on the capital you originally committed to the market. For example, if you purchased a stock for $100 several years ago and it currently pays a $5 annual dividend, your yield on cost is 5%. If that company increases its dividend to $10 over the next decade, your yield on cost rises to 10%, regardless of whether the stock price has climbed to $200 or fallen to $80. This metric is the cornerstone of dividend growth investing, as it highlights the compounding power of increasing payouts over time. By using our yield on cost calculator, you can strip away market volatility and focus on the tangible cash flow generated by your initial investment, providing a clearer picture of your portfolio's income-generating efficiency and helping you stay disciplined during periods of market turbulence.

How the Calculator Works

The mechanics of our yield on cost calculator are straightforward yet powerful. It utilizes the fundamental YOC formula: (Annual Dividend per Share / Cost Basis per Share) x 100. When you input your original purchase price (the cost basis) and the current annual dividend amount, the calculator performs a division to determine what percentage of your initial investment is being returned to you as cash each year. If you provide the number of shares, the tool goes a step further by calculating your total annual passive income and your total original investment amount. This allows you to see the aggregate impact of your investment strategy. The calculator is designed to handle various scenarios, including stocks that have undergone splits or investors who have averaged into a position over time. In those cases, you simply use your "average cost basis" to get an accurate YOC reading. This tool is essential for comparing the performance of "legacy" holdings against potential new investments, ensuring that you make data-driven decisions about where to allocate your next dollar of capital.

Why Use Our Calculator?

1. Visualize Long-Term Dividend Growth

The primary benefit of tracking yield on cost is seeing the tangible results of dividend growth. Many high-quality companies, often referred to as Dividend Aristocrats or Kings, raise their payouts annually. Over 10 or 20 years, these raises can turn a modest 3% initial yield into a 20% or 30% yield on cost. Our calculator makes this growth visible, proving that patience in the stock market pays literal dividends.

2. Emotional Discipline During Market Volatility

When the stock market crashes, current yields often skyrocket because prices are falling. This can be terrifying for investors. However, looking at your yield on cost reminds you that your personal income stream remains stable (provided the company doesn't cut the dividend). Seeing a high YOC can provide the psychological "margin of safety" needed to hold through a bear market rather than panic selling.

3. Accurate Retirement Income Forecasting

For those planning for retirement, cash flow is king. By calculating the YOC of your core holdings, you can more accurately project how much income your portfolio will generate in the future. This is far more useful than relying on current market yields, which can be distorted by temporary price spikes or drops. You can use this data alongside a dividend reinvestment calculator to see how your income might snowball.

4. Better Capital Allocation Decisions

Should you sell an old stock with a 10% YOC to buy a new one with a 4% current yield? While YOC shouldn't be the only factor, it helps you understand the "opportunity cost" of moving your money. It forces you to evaluate whether the new investment truly offers better long-term prospects than the proven income generator you already own.

5. Tracking the Power of Reinvestment

If you use a Dividend Reinvestment Plan (DRIP), your cost basis changes over time. Our calculator allows you to input your updated average cost to see how reinvesting dividends has lowered or raised your effective yield. This is a great way to measure the efficiency of compounding interest in a real-world brokerage account, similar to the projections found in a compound interest calculator.

How to Use the Yield on Cost Calculator

Using this tool is designed to be as simple as possible. Follow these four steps to get your results: Step 1: Locate your original purchase price per share from your brokerage statement. If you bought shares at different times, use the average cost basis. Step 2: Find the current annual dividend per share. This is usually listed on financial news sites as "Annual Dividend" or "Forward Dividend." Step 3: (Optional) Enter the total number of shares you currently own to see your total annual cash flow. Step 4: Click the "Calculate" button. The tool will instantly display your Yield on Cost percentage and a breakdown of your annual earnings. For more information on dividend safety, you can consult resources like the SEC's guide on dividends.

Example Calculations

Example 1: The Long-Term Holder. Imagine you bought 100 shares of a blue-chip stock in 2010 for $40 per share. At the time, it paid $1.20 in dividends (3% yield). Today, that same company pays $4.00 in dividends. While the current stock price might be $150 (a 2.6% current yield), your Yield on Cost is 10% ($4.00 / $40). You are earning a double-digit return on your original money every single year.

Example 2: The High-Yield Trap. You buy a stock for $20 that pays a $2 dividend (10% yield). A year later, the company struggles, the stock price drops to $10, and they cut the dividend to $0.50. Your current yield is 5% ($0.50 / $10), but your Yield on Cost has plummeted to 2.5% ($0.50 / $20). This example shows why YOC is a vital reality check on investment quality.

Use Cases for Yield on Cost

Yield on cost is not just a vanity metric; it has practical applications for different types of investors. Retirees use it to determine if their original "nest egg" is keeping pace with inflation. If your YOC is growing faster than the Consumer Price Index, your purchasing power is increasing. Tax Planning: Investors in taxable accounts use YOC to weigh the benefits of holding a high-YOC stock versus selling and triggering capital gains taxes. Often, the high income relative to the original cost makes holding the better financial move. Estate Planning: When passing shares to heirs, understanding the YOC helps in explaining the value of the income stream being inherited. For more on general investing terms, visit Investor.gov.

Frequently Asked Questions (FAQ)

Is Yield on Cost better than Current Yield?

Neither is "better"; they serve different purposes. Current yield tells you what the market offers today. Yield on cost tells you how your specific investment is performing relative to what you paid. You need both to make an informed decision.

Can Yield on Cost be higher than 100%?

Yes! If you hold a stock for many decades and the company consistently raises dividends, it is possible for the annual dividend per share to eventually exceed your original purchase price per share. This is the ultimate goal of dividend growth investing.

Does YOC account for inflation?

No, the standard YOC formula uses nominal dollars. To understand your "real" yield, you would need to adjust your original cost basis for inflation using a CPI calculator, though most investors prefer the simplicity of the nominal YOC.

Should I sell a stock if the YOC is low?

Not necessarily. A low YOC might simply mean you recently bought the stock or the company is in a high-growth phase and reinvesting profits rather than paying them out. Always look at the total return and the company's future prospects.

How do stock splits affect YOC?

Stock splits require you to adjust your cost basis. If you bought 1 share for $100 and it splits 2-for-1, you now own 2 shares with a cost basis of $50 each. Your YOC remains the same because the dividend per share is usually halved as well.

Conclusion

The yield on cost calculator is an indispensable tool for any serious income investor. It provides a historical perspective that current market data simply cannot offer, allowing you to see the long-term fruits of your investment labor. By focusing on YOC, you shift your mindset from a "trader" looking at daily price fluctuations to an "owner" focused on growing a sustainable income stream. Whether you are just starting your journey with a few shares or managing a massive retirement portfolio, tracking your yield on cost will keep you focused on what truly matters: the steady, compounding growth of your wealth. Start using our calculator today to see the true power of your portfolio!

Calculation Results

Yield on Cost: '+yoc.toFixed(2)+'%

';if(!isNaN(numShares)&&numShares>0){var totalInvested=costBasis*numShares;var totalIncome=annualDiv*numShares;html+='

Total Original Investment: $'+totalInvested.toLocaleString(undefined,{minimumFractionDigits:2,maximumFractionDigits:2})+'

';html+='

Total Annual Dividend Income: $'+totalIncome.toLocaleString(undefined,{minimumFractionDigits:2,maximumFractionDigits:2})+'

';}html+='

This means for every $100 you originally invested, you are now receiving $'+yoc.toFixed(2)+' in annual dividends.