Yield on Cost Calculator
What Is yield on cost calculation?
Yield on cost (YOC) is a financial metric that measures the dividend yield of a security based on its original purchase price rather than its current market price. For long-term dividend growth investors, this is one of the most significant indicators of investment success. While the "current yield" of a stock tells you what a new investor would earn today, the yield on cost tells you what YOU are earning based on the capital you actually deployed years ago. For example, if you bought a stock at $50 per share and it paid a $1 dividend at the time, your initial yield was 2%. However, if that company increases its dividend over ten years to $5 per share, your yield on cost has risen to 10%, even if the stock price has climbed to $200. This calculation highlights the power of dividend growth and compounding over long horizons. It serves as a psychological anchor for investors, encouraging them to hold onto high-quality companies that consistently raise their payouts, as the income generated relative to the initial investment becomes increasingly substantial over time.
How the Calculator Works
Our Yield on Cost Calculator uses a straightforward mathematical formula to determine your personal dividend return. The formula is: (Current Annual Dividend / Original Purchase Price) x 100. By inputting the price you paid for the stock (your cost basis) and the total dividends you expect to receive per share over the next twelve months, the tool instantly computes the percentage return on your initial capital. This tool is essential for comparing the performance of older positions in your portfolio against new opportunities. It helps you visualize how much "yield" your original dollars are producing today. For more advanced portfolio tracking, you might also want to check our Dividend Reinvestment Calculator to see how compounding affects these numbers over time.
Why Use Our Calculator?
1. Track True Income Performance
Standard brokerage platforms often focus on current market yield. Our calculator allows you to see the actual productivity of your invested capital, which is the most accurate way to measure income growth in a long-term portfolio.
2. Evaluate Dividend Growth Stocks
By calculating YOC, you can see which companies in your portfolio are truly delivering on their promise of dividend growth. A high YOC is a hallmark of a successful Dividend Aristocrat or King in a mature portfolio.
3. Retirement Planning Accuracy
When planning for retirement, knowing your YOC helps you understand how much cash flow your existing assets will generate. It provides a clearer picture of your "income floor" regardless of market volatility.
4. Psychological Discipline
During market downturns, seeing a high yield on cost can prevent panic selling. If your YOC is 8% while the market is crashing, you are less likely to sell a productive asset that continues to pay you well on your original investment.
5. Comparison with Fixed Income
Use this tool to compare your stock's performance against "safe" investments like Treasury bonds. If your YOC on a stock is 12%, it far outperforms the 4-5% offered by current fixed-income products, justifying the equity risk. You can learn more about yield comparisons at SEC.gov.
How to Use (Step-by-Step)
Using the Yield on Cost Calculator is simple and requires only two pieces of information: 1. Locate your original purchase price per share from your brokerage statement. If you bought in multiple lots, use the weighted average cost basis. 2. Find the current annual dividend per share. This is usually the most recent quarterly dividend multiplied by four. 3. Enter these values into the fields above. 4. Click "Calculate" to see your personalized yield. For a broader view of your total returns, consider using our Stock Profit Calculator.
Example Calculations
Example 1: The Long-Term Holder
Imagine you bought shares of a blue-chip company in 2010 for $40.00 per share. At the time, the dividend was $1.20 (3% yield). Today, the company pays $4.00 per share annually. Your current yield on cost is ($4.00 / $40.00) * 100 = 10%. Even if the stock price is now $150, your original investment is yielding double digits.
Example 2: The Recent Purchase
You bought a tech stock for $120.00 last year. It just initiated a dividend of $1.50 per year. Your YOC is ($1.50 / $120.00) * 100 = 1.25%. While low now, if the company grows the dividend by 15% annually, your YOC will look much different in a decade.
Use Cases
Yield on cost is primarily used by Dividend Growth Investors (DGI). It is also highly relevant for estate planning, as it shows the income potential of inherited shares with a stepped-up basis. Financial advisors use YOC to demonstrate the long-term value of staying invested in equities versus moving to cash. Furthermore, it is a key metric for "Value" investors who buy distressed companies with the expectation that dividends will eventually be reinstated or increased. For more information on investment metrics, visit Investopedia.
FAQ
Can yield on cost be higher than 100%?
Yes, theoretically. If you hold a stock for many decades and the company aggressively raises dividends, the annual dividend per share could eventually exceed your original purchase price. This is common with legendary investments like Warren Buffett's purchase of Coca-Cola.
Does YOC account for inflation?
No, YOC is a nominal calculation. To understand your "real" yield, you would need to adjust the original purchase price for inflation using the CPI (Consumer Price Index).
Is YOC better than Current Yield?
Neither is "better"; they serve different purposes. Current yield tells you the value of a new dollar invested today. YOC tells you the performance of a dollar invested in the past. Both are necessary for a complete portfolio analysis.
Should I sell a stock with a high YOC?
Not necessarily. A high YOC indicates a very productive investment. However, you should always evaluate the company's current fundamentals. If the business is failing, a high YOC won't save the principal value of your investment.
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, your new cost basis is $50 per share. You must use this adjusted basis for an accurate YOC calculation.
Conclusion
The Yield on Cost calculation is a powerful perspective for any serious investor. It shifts the focus from daily price fluctuations to the steady growth of income. By understanding your YOC, you can better appreciate the long-term benefits of dividend growth and make more informed decisions about your portfolio's future. Start tracking your YOC today to see the true power of your investment strategy.