TL;DR: Yield on cost equals the annual dividend per share divided by your cost per share. Buy at $40 with a $1.20 dividend and your yield on cost starts at 3.0 percent. If the dividend later rises to $1.80, your yield on cost is 4.5 percent, even if the stock now trades at $60 and a new buyer gets only 3.0 percent. The metric rewards time and dividend growth on your original capital. It says nothing about whether the stock is worth holding today, which is why it needs the limits section in this post as much as the formula.
Key Takeaways
- Yield on cost is personal. Two holders of the same stock have different yields on cost because they paid different prices.
- The formula is one line: current annual dividend per share, divided by your cost per share, times 100.
- With several purchases at different prices, use your average cost across the lots for a position-level figure, or compute it lot by lot for the full picture.
- Yield on cost rises when a company grows its dividend and falls when it cuts. It never moves just because the market price moved.
- A high yield on cost is a record of a good entry and patient holding, not a buy signal. Judge the holding itself on today's facts, using the stock research checklist.
What is yield on cost?
Dividend yield, the figure quoted on every stock page, divides the annual dividend by the current price. It describes the income a buyer today would get for money invested today. Yield on cost swaps the denominator: the annual dividend divided by the price you paid. It describes the income your original investment now produces.
That swap changes the question the number answers. Current yield asks: what does this stock pay a new buyer? Yield on cost asks: what is my capital, committed years ago, now earning? For an income investor deciding whether a long-held position is doing its job, the second question is often the relevant one, and it is invisible in standard quote data because no quote service knows what you paid. Tracking it is one of the five jobs in our guide to tracking a dividend portfolio without a spreadsheet.
How do you calculate it? A worked example
All figures in this section are illustrative. Our yield on cost calculator runs this math, including the multi-lot case below, on your own figures. Suppose you buy a stock at $40 per share, and it pays an annual dividend of $1.20 per share.
- Yield on cost at purchase: $1.20 divided by $40 equals 3.0 percent. At the moment of purchase, yield on cost and current yield are the same number, because your cost is the current price.
Years pass and the company raises its dividend to $1.80 per share. The stock now trades at $60.
- Your yield on cost: $1.80 divided by $40 equals 4.5 percent.
- A new buyer's current yield: $1.80 divided by $60 equals 3.0 percent.
Same dividend, same day, two different yields, because the denominators are two different prices paid at two different times. If you own 100 shares bought at $40, the position pays you $180 a year on $4,000 invested. That $180 figure, against your actual capital, is what yield on cost exists to keep in view.
What if you bought at several prices?
Most real positions were built in pieces. Suppose you bought 100 shares at $40 and later 100 more at $50, and the dividend is now $1.80 per share.
- Total cost: 100 times $40 plus 100 times $50 equals $9,000, for 200 shares. Average cost per share: $45.
- Position yield on cost: $1.80 divided by $45 equals 4.0 percent.
- Total annual income: 200 times $1.80 equals $360, on $9,000 invested, which checks against the same 4.0 percent.
Lot by lot, the first purchase yields 4.5 percent on cost and the second yields 3.6 percent ($1.80 divided by $50). A calculator that only takes one purchase price forces you to average. Averaging is fine for a position-level view, but lot-level figures are the honest ones when you are deciding which purchase actually earned its place, and they are what a proper portfolio tracker computes per lot automatically.
Does yield on cost account for dividend growth?
It reflects it, after the fact. Every dividend increase raises your yield on cost mechanically, because the numerator grows while your cost stays fixed. Every cut lowers it the same way. What it does not do is predict growth: the number is a rear-view measure of what the position pays now relative to what you committed. Reinvestment supercharges it in a way the simple formula understates, because reinvested dividends buy new shares that pay dividends of their own. That compounding is the subject of the dividend reinvestment calculator, and its effect shows up in your share count before it shows up in any single yield figure.
One more boundary: yield on cost ignores price appreciation entirely. A position can carry a splendid yield on cost while its total value has stagnated for a decade, and a position with a modest yield on cost can be your best total performer. Income on original capital is one lens. It is not the portrait.
What are the limits of yield on cost?
- It flatters old positions and says nothing about opportunity cost. The question that matters today is not what your $40 earns in dividends. It is whether the position's current value, at today's price, is well deployed compared with your alternatives. Yield on cost cannot answer that, and used carelessly it becomes an argument for never selling anything.
- It depends on the dividend surviving. The numerator is the current dividend, declared at the company's discretion and changeable at any board meeting. A cut rewrites your yield on cost overnight.
- It can reward the wrong comparison. Celebrating a 4.5 percent yield on cost while the same stock yields 3.0 percent to a new buyer is fair as a record of your entry. It is not evidence the stock is cheap or expensive today. That judgement belongs to valuation work, the Graham Number and its relatives, run on today's numbers.
Used inside those limits, yield on cost is a clean, motivating measure: it shows an income investor, in one percentage, whether patience and dividend growth are compounding in their favour on the capital they actually committed.
FAQ
What is the difference between yield on cost and dividend yield? The numerator is the same, the current annual dividend per share. Dividend yield divides it by today's market price and describes a new buyer's income. Yield on cost divides it by the price you paid and describes the income on your original investment.
What if I bought at several different prices? Use your average cost per share for a position-level figure, or compute each lot separately for the precise picture. The worked example shows both: an average cost of $45 gives a 4.0 percent position yield on cost, while the individual lots sit at 4.5 percent and 3.6 percent.
Is a high yield on cost good? As a record, yes: it means the dividend has grown, you held, or both. As a decision rule, no: it tells you nothing about the company's current health or the stock's current price. Hold or sell decisions need today's facts, not the archaeology of your entry price.
Does reinvesting dividends change my yield on cost? Yes, in effect. Each reinvested dividend creates a small new lot at that day's price, with its own cost basis, so a long-running reinvestment plan produces many lots and a blended yield on cost. Trackers that keep lot-level records compute the blend correctly. A single-price calculator cannot, which is its main practical limit.
Sources
- Investor.gov (U.S. Securities and Exchange Commission), investor education material on dividends and investment records, accessed October 2026.
- FINRA Investor Education Foundation, material on dividends and yield, accessed October 2026.
Educational content, not financial advice. The worked examples use hypothetical prices and dividends for illustration. Dividend amounts are set by each company and are never guaranteed, and this guide is not a recommendation to buy or sell any security.
