The formula
Annual dividend per share ÷ Your original cost per share × 100 = Yield on cost
If you paid $40 per share and the stock now pays $2.80 per year in dividends, your yield on cost is 7% — even if today's price is $80 and the current yield is only 3.5%.
Why this matters more than current yield for long-term investors
Current yield is what new buyers see. Yield on cost is what you actually earn on your original capital.
The difference grows dramatically with time. A stock you bought fifteen years ago at a 3% current yield may now deliver an 8% yield on your cost if the company has grown its dividend aggressively. That 8% on your original investment is real cash flowing into your account every year — not paper gains, not an accounting concept.
Yield on cost and DRIP together
When you reinvest dividends through a DRIP, you accumulate additional shares at different prices. Your cost basis becomes a blend of your original purchase price and all the prices at which dividends were reinvested.
Tracking yield on cost alongside DRIP requires knowing your total average cost basis — all shares including reinvested ones — divided into current annual income. Most brokerage platforms show this if you navigate to your dividends or income section.
What yield on cost does not tell you
Yield on cost is a backward-looking measure of how well a past investment has performed. It doesn't predict future performance, and it shouldn't be used to make hold-or-sell decisions on its own.
A stock with a high yield on cost from a decade ago may still be a worse forward investment than a newer position with better current prospects. The past compounding is real, but future compounding is what matters to your retirement.
Related terms
- Dividend yield — what new investors see; your starting yield on cost
- Dividend growth rate — the mechanism that improves yield on cost over time
- DRIP — reinvestment that adds to your share count and affects cost basis