What is yield on cost?
Yield on cost measures the current rate of dividend income based on the price you initially paid for your investment. If the company you invested in increases the dividend it pays to shareholders, you’ll achieve a higher rate of return on your original investment. Thus, your yield on cost rises.
Where have you heard about yield on cost?
Many people like to invest in stocks that pay dividends to take advantage of regular payments and the opportunity to reinvest the dividends into more stock. Calculating yield on cost enables investors to more reliably measure their portfolios' potential for growth.
What you need to know about yield on cost.
Dividends won’t make you rich overnight, but if you’re playing the long game, you can build up your wealth steadily, although there are no guarantees of course. Yield on cost is a key measurement to help you grow your finances.
To calculate yield on cost for a stock, you divide the stock’s annual dividend by the average price paid per share and multiply that figure by 100 to get a percentage.
Yield on cost simply shows you whether a stock’s dividend has been rising or falling since you purchased the investment. It tells you very little about a company’s future growth, so it’s important not to get fixated on a share just because it has a high yield on cost.
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