Yield on Cost (YOC) Calculator

Original Purchase Price (Cost Basis) $

Current Annual Dividend per Share $

Current Market Price $ (Optional)

Results:

Your Yield on Cost: 0%

What Is Yield on Cost Calculator?

A Yield on Cost (YOC) calculator is a specialized financial tool used by dividend growth investors to measure the annual dividend income relative to the price originally paid for an investment. Unlike the current dividend yield, which fluctuates daily based on market price changes, the yield on cost remains anchored to your initial investment amount. This metric is essential for long-term investors because it highlights the compounding power of dividend growth over time. For example, if you purchased a stock for $100 and it paid a $3 dividend, your initial yield was 3%. However, if that company increases its dividend to $10 over the next decade, your yield on cost becomes 10%, even if the stock price has risen to $300. This calculator allows you to visualize how your early investment decisions and the company's dividend policy contribute to your current income stream, providing a more personalized view of your portfolio's performance compared to standard market benchmarks.

How the Yield on Cost Calculator Works

Our calculator uses a simple but powerful mathematical formula to determine your true income return. The primary calculation is: Yield on Cost = (Annual Dividend per Share / Original Purchase Price) * 100. By inputting your cost basis (the average price you paid for your shares, including commissions) and the current annual dividend rate, the tool instantly calculates your percentage return. If you provide the optional current market price, the tool also calculates the current dividend yield (Current Dividend / Current Price). This comparison is vital because it shows you the "spread" between your personal return and what a new investor would earn if they bought the stock today. For many successful long-term holders, the yield on cost can reach double digits, even when the current market yield remains low due to capital appreciation. This psychological boost helps investors stay committed to their strategy during market volatility, as they see their personal cash flow yield far exceeding what they could get from new positions.

Why Use Our Calculator?

1. Track Long-Term Performance

Standard brokerage accounts often emphasize capital gains, but income investors need to see how their cash flow has evolved. This calculator provides a historical perspective that market price alone cannot capture.

2. Evaluate Dividend Growth

By comparing your YOC with the current yield, you can objectively see how much a company has increased its payout since you became a shareholder. It acts as a report card for the company's dividend policy.

3. Better Retirement Planning

When planning for retirement, knowing your actual yield on the capital you deployed years ago helps in predicting future income more accurately than relying on volatile market yields. You can also use our dividend growth calculator to project future scenarios.

4. Focus on Income, Not Volatility

During a market crash, your yield on cost remains stable as long as the dividend is not cut. This helps you ignore price fluctuations and focus on the growing income stream your assets produce.

5. Comparative Analysis

Use this tool to compare different holdings in your portfolio. You might find that an "old" holding with a low current yield actually has a massive yield on cost, making it more valuable to your income goals than a "new" high-yield stock. Consider also checking your dividend payout ratio to ensure those dividends are sustainable.

How to Use the Calculator (Step-by-Step)

Enter Your Cost Basis: Input the average price you paid per share. Be sure to include any transaction fees or commissions to get an accurate figure.
Input Current Annual Dividend: This is the total amount of dividends the company pays per share over a full year. If they pay quarterly, multiply the last payment by four.
Optional Market Price: Enter the current trading price of the stock to see how your personal yield compares to the market's current yield.
Click Calculate: The tool will instantly generate your Yield on Cost and provide a comparison if data was provided.

Example Calculations

Example 1: The Dividend Aristocrat. Suppose you bought shares of a company 15 years ago for $40 per share. Today, the company pays an annual dividend of $6.00. While the current market price might be $200 (a 3% current yield), your Yield on Cost is ($6.00 / $40) * 100 = 15.00%.

Example 2: The New Investment. You buy a tech stock for $150 that just started paying a dividend of $1.50 per year. Your Yield on Cost and current yield are both 1.00%. If the company grows its dividend by 10% annually, in 7 years your YOC will nearly double even if the stock price remains stagnant.

Use Cases for Yield on Cost

Yield on cost is particularly useful for "Buy and Hold" investors and those practicing Dividend Growth Investing (DGI). Institutional investors often look at YOC to justify holding legacy positions that have appreciated significantly in value. It is also a critical metric for estates and trusts where the original "stepped-up" basis or historical basis determines the income efficiency of the inherited assets. Furthermore, it serves as a reality check for investors tempted by "yield traps." Often, a high YOC on a quality stock is safer and more productive than a high current yield on a distressed company. For more information on safe investing practices, you can visit the SEC Investor Bulletin on Dividends.

FAQ

Is Yield on Cost better than Current Yield?

Neither is "better"; they serve different purposes. Current yield tells you the value of the stock today, while yield on cost tells you the return on your specific investment. YOC is a backward-looking metric of personal performance.

Can Yield on Cost decrease?

Yes, if the company cuts its dividend, your yield on cost will decrease because the numerator in the equation (the annual dividend) has shrunk, while your cost basis remains the same.

Should I make investment decisions based on YOC?

You should generally not use YOC to decide whether to sell a stock. Financial experts, including those at FINRA, suggest looking at future prospects rather than sunk costs. However, YOC is an excellent tool for tracking historical success.

Does YOC include reinvested dividends?

If you reinvest dividends (DRIP), your cost basis changes as you acquire more shares at different prices. To get an accurate YOC, you should use the "Average Cost Basis" of all shares owned.

How does inflation affect Yield on Cost?

While YOC might look high (e.g., 20%), inflation over 20 years may have reduced the purchasing power of that income. It is important to compare your dividend growth rate against the Consumer Price Index (CPI) as reported by the Bureau of Labor Statistics.

Conclusion

The Yield on Cost calculator is a fundamental tool for any serious income investor. It transforms the way you view your portfolio, shifting the focus from daily market noise to long-term wealth creation. By understanding your true return on capital, you can better appreciate the "snowball effect" of dividend growth and make more informed decisions about your financial future. Remember that while a high YOC is a badge of honor for long-term holders, the sustainability of the dividend and the company's future growth prospects remain the most critical factors for continued success. Use this calculator regularly to monitor your progress toward financial independence.