Dividend Yield-on-Cost Calculator

Frequently Asked Questions

What is yield on cost?

Yield on cost is the current annual dividend per share divided by the price you originally paid, rather than the current market price. It rises over time as a company raises its dividend.

How is yield on cost different from current yield?

Current yield uses today market price, so it reflects what a new buyer earns. Yield on cost uses your original purchase price, so it shows the return on your specific cost basis.

Does a high yield on cost mean a stock is a good buy today?

Not necessarily. Yield on cost says nothing about valuation or total return today. This figure is for planning only and is not investment advice.

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What Yield-on-Cost Means

Yield-on-cost measures the annual dividend a stock pays today against the price you originally paid for it, not the current market price. It tells long-term holders how much income their original capital now produces. For a stock you bought years ago that has raised its dividend, yield-on-cost can be far higher than the yield a new buyer sees today.

The Calculation

Current yield-on-cost is the present annual dividend per share divided by your purchase price. Projected yield-on-cost grows that dividend forward by an assumed annual growth rate over a chosen number of years, then divides by the same original cost. This shows how a dividend-growth stock can compound your income over time.

Yield on Cost vs. Current Yield

These two metrics answer different questions. Current yield divides today's dividend by today's market price and tells any buyer what income rate they can earn right now. Yield-on-cost divides today's dividend by your personal purchase price and tells you what return on your original outlay the stock now generates. A long-term holder of a dividend grower may see a current yield of 2% on a stock priced at $200, while their yield-on-cost is 8% because they paid $25 twenty years ago.

Neither metric predicts future dividends. Current yield is the right tool for evaluating a new investment: it tells you what you get for the capital you are deploying today. Yield-on-cost is the right tool for evaluating a held position: it quantifies the income reward you have accumulated and informs the hold-vs-sell decision. Using current yield to judge a long-held position can be misleading; the stock that looks like it yields only 2% today might be delivering 8% on your original cost.

How Dividend Growth Builds YOC Over Time

The most powerful driver of a rising yield-on-cost is consistent dividend growth. At a 7% annual growth rate, the Rule of 72 implies a dividend doubles in roughly 10 years. A stock purchased at a 3% current yield that grows its dividend at 7% per year will deliver approximately 6% yield-on-cost after 10 years and roughly 12% after 20 years, all on the original purchase price.

Dividend reinvestment amplifies this further. When dividends are reinvested through a DRIP (dividend reinvestment plan), additional shares are accumulated over time. Each new share earns its own dividend in subsequent periods, compounding the income base. The reinvested shares are purchased at the current market price, which means the effective yield on new shares is the current yield, typically lower than YOC for a long-held winner. Over time, the DRIP's income contribution adds to the total income stream even as the incremental yield on new shares is modest.

Classic dividend-growth examples from the S&P 500 demonstrate this compounding: companies that have raised their dividends for 25 or more consecutive years (the "Dividend Aristocrats") often show YOC figures of 10–20% or higher for investors who bought a decade or two ago at much lower prices.

YOC as a Portfolio Retention Signal

A high yield-on-cost creates a strong argument for holding a position even when the stock's current yield looks modest and a new buyer would earn less. If you are receiving 8% on your original cost, selling that position and reinvesting in a 3% current yielder requires the new position to substantially outperform in price appreciation to compensate for the income loss. This is the core of the "let the compounders run" philosophy in dividend-growth investing.

However, anchoring to YOC can become a cognitive trap when business fundamentals change. If a company's earnings are deteriorating, its debt is rising, and dividend coverage ratios are narrowing, the high YOC you currently enjoy is at risk of being cut. When to override YOC and sell: dividend coverage ratio falls below 1.5x (earnings per share less than 1.5x the dividend per share); the company has cut or suspended dividends; the thesis for owning the business has changed fundamentally; or the position has become so large it represents a concentration risk to the portfolio. YOC is a valuable retention signal but it is not a reason to ignore deteriorating business quality.

Key Caveats

Yield-on-cost is a backward-looking income metric, not a measure of total return or value.

Projected growth assumes the dividend keeps rising at a steady rate, which is never guaranteed.

A high yield-on-cost does not mean you should hold a stock whose business is deteriorating.

This is an estimate for planning. Verify dividend figures with current company filings.

Tips & FAQ

Does high YOC mean I should never sell? No. YOC reflects the income return on your original capital, but it says nothing about future total returns. If a superior opportunity exists elsewhere and the current holding's fundamentals are weakening, selling is rational regardless of YOC. The sunk cost of your purchase price is irrelevant to the forward-looking investment decision. Use YOC as one input alongside dividend safety, business quality, and valuation relative to alternatives.

How does inflation affect my real YOC? Nominal YOC ignores inflation entirely. If you earned an 8% nominal yield-on-cost during a period of 4% inflation, your real yield-on-cost is only about 4%. Companies that grow dividends faster than inflation protect the real purchasing power of your income stream. This is one reason dividend-growth investors favor companies with consistent 5–10% annual increases over those that merely pay a high current dividend with no growth.

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