What Is Yield on Cost?
Yield on cost is the current annual dividend an investment pays divided by the price you originally paid for it. As dividends grow over the years, your yield on cost can climb well above the yield a new buyer would get today.
Yield on cost
6%
on original price
What is yield on cost?
Yield on cost measures the dividend an investment pays today against the price you originally paid for it — not against its current price.
Say you bought a position for $10,000 some years ago. Back then it paid $400 a year, a 4% yield. The company has since raised its dividend, and it now pays $600 a year. Divide $600 by your original $10,000 cost and you get a 6% yield on cost.
A new buyer paying today's higher price would earn the current yield instead, which is usually lower. Yield on cost rewards holding a growing dividend over time; it's a look-back at your own entry price, not the market's.
Yield on cost = current annual dividend ÷ your original purchase price. It rises as dividends grow, so it reflects your entry point — not the yield a buyer gets today.
Why yield on cost matters
Rewards dividend growth
As a company raises its dividend, your income climbs against a fixed original cost, so yield on cost rises over time.
Shows income on your entry
It frames current income relative to what you actually paid, which can differ a lot from today's price.
Highlights long holding periods
The longer you hold a growing dividend, the more yield on cost can exceed the current yield.
Can flatter a decision
A high yield on cost reflects past dividend growth, not whether the investment is attractive to buy or hold now.
Formula
Divide the dividend you receive today by the price you originally paid. For example, a current $600 annual dividend on a position bought for $10,000 is a 6% yield on cost.
Yield on Cost = Current Annual Dividend ÷ Original Purchase Price × 100%Where:
- Current Annual Dividend = the total dividend paid over the past year (per share or per position)
- Original Purchase Price = what you paid when you first bought — your cost basis, not today's price
Real-world example
Suppose you bought a position for $10,000 several years ago, when it paid $400 a year — a 4% yield at the time.
The dividend has since grown to $600 a year. Measured against your original $10,000 cost, that's a 6% yield on cost, even though a new buyer at today's higher price might see a current yield closer to 4% again.
Yield on cost looks backward at your entry price, so it tends to rise for long-term holders of growing dividends. It doesn't say whether the investment is a good buy today — for that, the current yield and total return matter more.
- Price gain
- $0
- Dividends
- $600
- Total return
- 6%
Common mistakes
Comparing yield on cost to others' current yield
Your yield on cost reflects your entry price; another investor's current yield reflects today's price. They're not comparable.
Using it to judge a buy decision
A high yield on cost is a look-back, not a signal to buy or hold. Current yield and fundamentals matter for that.
Confusing it with total return
Yield on cost counts income only. It ignores price changes, so it can look strong even when the position's value has fallen.
Assuming dividends keep growing
Yield on cost rises only if dividends are raised. Dividends can be frozen, cut, or suspended.
Yield on cost vs related measures
| Metric | What it measures | Uses original cost? |
|---|---|---|
| Yield on Cost | Current dividend relative to your original purchase price | Yes |
| Dividend Yield | Annual dividend relative to today's price | No |
| Total Return | Price change plus income over a period | No |
| Dividend Growth | The rate at which the dividend rises over time — what lifts yield on cost | No |
Frequently asked questions
What is yield on cost?
Yield on cost is the current annual dividend an investment pays divided by the price you originally paid for it. It shows the income you now earn relative to your own entry price.
How is yield on cost calculated?
Divide the current annual dividend by your original purchase price, then multiply by 100. For example, a $600 dividend on a $10,000 cost basis is a 6% yield on cost.
How is yield on cost different from dividend yield?
Dividend yield uses today's price as the denominator; yield on cost uses your original purchase price. As dividends grow, yield on cost typically rises above the current yield.
Is a high yield on cost good?
It shows the dividend has grown since you bought, which long-term holders like to see. But it's a look-back — it doesn't indicate whether the investment is attractive to buy or hold today.
Does yield on cost include price gains?
No. It counts income only, measured against your original cost. To capture both income and price change, use total return.
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Rionux provides educational content and tools only. This is not financial advice.