On platforms like Dividend Data, you can find Yield On Cost for stocks. This helps you make informed investment decisions.
Definition:
Yield on Cost is the annual dividend rate of an investment divided by the cost basis (the original purchase price). Unlike current dividend yield, which relates to the market price, YOC reflects the return on the original investment, providing a long-term perspective on dividend growth.
Importance of Yield on Cost
Long-Term Performance Indicator: YOC shows how the return on an initial investment grows over time, especially as companies increase their dividend payouts.
Investment Strategy Evaluation: Useful for assessing the effectiveness of a long-term dividend investment strategy.
Comparative Analysis: Helps compare the performance of different dividend-paying stocks over an extended period.
Calculating Yield on Cost
YOC is calculated with the formula:
Yield on Cost = (Annual Dividend per Share / Cost Basis per Share) × 100
Yield on Cost in Dividend Investing
Growth Perspective: YOC is particularly insightful for investments in companies that consistently grow their dividends.
Income Forecasting: For retirement planning or income-focused investing, YOC can help predict future income streams.
Investment Horizon: Most beneficial for long-term investors who hold dividend stocks for many years.
Factors Influencing Yield on Cost
Dividend Growth: Regular increases in dividends paid by a company will result in a higher YOC over time.
Reinvested Dividends: If dividends are reinvested, the cost basis changes, which can affect the YOC.
Initial Purchase Price: The price at which shares were originally bought significantly impacts the YOC.
Yield on Cost vs. Current Dividend Yield
While the current dividend yield is based on the stock's current market price, YOC focuses on the dividend return relative to the original investment cost.