What Is Yield on Cost? How to Calculate and Use It

Yield on cost (YOC) is the dividend yield calculated against what you originally paid for a stock — not its current price. It answers a question every long-term dividend investor eventually asks: "How much income is my original investment producing today?"

If you bought a stock at $50 and it now pays $3 per share annually, your yield on cost is 6% — even if the stock trades at $150 today and new buyers only get a 2% yield. That gap between your yield and theirs is the reward for holding a dividend grower for years.

The Yield on Cost Formula

Yield on cost is a simple division:

Yield on Cost = Current Annual Dividend Per Share ÷ Your Original Cost Per Share × 100

Two details matter:

• Use the current dividend, not the dividend at the time you bought. The whole point is to capture dividend growth since your purchase.
• Use your actual cost basis per share. If you bought in multiple lots or reinvested dividends, use your average cost per share (your broker reports this).

A Worked Example

Say you bought 100 shares at $100 each, and the company paid $3.00 per share annually — a 3% starting yield. The company then raises its dividend 8% every year:

After 20 years of 8% dividend growth, your original $10,000 investment pays $1,398 a year — a 14% yield on what you paid. That's the compounding engine behind dividend growth investing, and it's why investors gravitate to companies with long streaks of annual increases like the Dividend Aristocrats (25+ years) and Dividend Kings (50+ years).

Want to run your own numbers? Our free Yield on Cost Calculator projects YOC over any holding period and growth rate — here's a walkthrough of how to use it.

Yield on Cost vs Current Yield

These two numbers answer different questions:

Current yield is the number to use when deciding where new money goes. Yield on cost is a scoreboard for money already invested — it only rises when the company raises its payout (or falls if the dividend is cut).

What Is a Good Yield on Cost?

There's no universal benchmark, because YOC depends on how long you've held. A useful way to think about it:

• A rising YOC means the dividend is growing — the strategy is working.
• A YOC well above the stock's current yield means you've captured years of dividend growth that new buyers can't get at today's price.
• A flat YOC for years means the company stopped raising its dividend — worth investigating.

Double-digit yield on cost is a common long-term milestone: with a 3% starting yield, it takes roughly 16 years of 8% annual dividend growth (or about 12 years at 11% growth) to get there. The trade-off between starting yield and growth rate is its own topic — we compare the two approaches in dividend yield vs dividend growth.

The Limitations of Yield on Cost

Yield on cost is motivating, but it can mislead if you treat it as a reason to hold forever:

1. It ignores opportunity cost. A 12% YOC feels great, but your capital is worth its current market value. If that value could earn more income or better total returns elsewhere, the high YOC alone isn't a reason to stay.
2. It's backward-looking. YOC measures past dividend growth. It says nothing about whether the company can keep raising its payout.
3. It can hide a weak current yield. A stock can sport a high YOC while yielding very little on today's price — fine for holders, irrelevant for new money.

The practical takeaway: use YOC to track your income growth, and use current fundamentals — payout ratio, dividend growth streak, free cash flow — to decide whether to keep holding.

How to Increase Your Yield on Cost

Three levers raise YOC over time:

• Buy dividend growers. Companies with long streaks of increases — the Dividend Aristocrats are the classic hunting ground — mechanically raise your YOC every year they hike.
• Reinvest dividends (DRIP). Reinvesting buys more shares that themselves pay growing dividends. It doesn't change per-share YOC, but it compounds your total income faster — see how DRIP works.
• Hold through volatility. YOC rewards time in the market. Selling a grower resets your cost basis and forfeits the accumulated yield advantage.

Most major brokers make this easy with free automatic dividend reinvestment — if yours doesn't, our platform comparison shows which brokers offer free DRIP and fractional reinvestment.

Frequently Asked Questions

Does yield on cost include reinvested dividends?

The standard per-share formula doesn't — reinvesting lowers or blends your average cost basis and adds shares. Many investors track "income on original investment" instead: total annual dividends received divided by total dollars they put in. Both are valid; just be consistent.

Can yield on cost go down?

Yes — if the company cuts or suspends its dividend, your YOC drops with it. Price movements never change your YOC, but dividend changes always do.

Is a high yield on cost a reason not to sell?

Not by itself. Your invested capital is worth its current market value, and that value could be redeployed. Treat YOC as a progress tracker, not a sell/hold signal.

Where do I find my cost basis?

Your broker reports cost basis per lot and as an average per share, usually on the position detail screen and on your 1099-B at tax time.

Try it yourself: plug your own holdings into the Yield on Cost Calculator to see what a decade of dividend growth does to your income — or browse the Dividend Kings for companies that have raised payouts for 50+ consecutive years.