What is yield on cost?

Yield on cost is the dividend income from an investment measured against the price originally paid for it, instead of its current price. For a stock held for many years whose dividend has grown, it can be far higher than the current dividend yield.

The formula

\text{Yield on cost} = \frac{\text{Dividends per share over 12 months}}{\text{Average purchase price per share}}

For a whole portfolio, it is the total yearly dividend income divided by the total cost basis of the holdings that produce it:

\text{YoC}_p = \frac{\sum_i D_i}{\sum_i C_i}

where $D_i$ is the yearly dividend income from holding $i$ and $C_i$ its cost basis.

A simple illustration

Shares were bought ten years ago at €40, when the company paid €1.20 per share — a yield of 3%. Since then the dividend has grown 7% a year to €2.36, and the share price has risen to €80:

\text{Yield on cost} = \frac{2.36}{40} = 5.9\% \qquad \text{Current yield} = \frac{2.36}{80} = 2.95\%

The investor now earns 5.9% a year on the money originally put in, a figure that reflects ten years of dividend growth.

What it shows

The effect of dividend growth over time. A modest starting yield on a company that raises its dividend steadily turns into a high income relative to the original investment.
Progress toward an income goal. For investors who plan to live on dividends, it shows how much income their invested capital already produces.

What it hides

It says nothing about the investment's attractiveness today. For deciding whether to keep or sell, the current yield is the relevant figure: selling the shares for €80 and buying something else would produce income based on €80, not €40.
It ignores the price change. A stock whose price has doubled has delivered most of its return through the price, which yield on cost does not show.
It flatters old positions and ignores the opportunity cost of the capital tied up in them.

Used alongside the current yield and the total return, yield on cost is a useful measure of how a dividend has grown. Used on its own, it can make a position look more attractive than it is.

A worked example

Worked through on a sample portfolio. The figures below are that portfolio’s, not yours.

What is my yield on cost?

Your yield on cost (last 12 months) is 1,47%.

Yield on cost compares the dividends you received over the last 12 months to what you originally paid for those holdings, showing the income return on your purchase price.

See these numbers for your own portfolio

Floreo works out every figure on this page from your own holdings — returns, risk, allocation, currencies — and the assistant explains them the way this page does. Import from your broker, or try it on the sample portfolio first.

Start Demo

The demo opens straight away on a sample portfolio — no account needed.