How do you calculate yield on cost?

Divide the current annual dividend per share by your average purchase price per share: YOC = annual dividend ÷ original cost per share. If you bought at $50 and the dividend is now $3, your yield on cost is 6%.

What is the difference between yield on cost and current yield?

Current yield divides the dividend by today's share price, so it changes with the market every day. Yield on cost divides by what you paid, so it only moves when the dividend changes. A stock can have a 3% current yield and a 7% yield on cost for a long-term holder.

Why does yield on cost keep rising?

Because the denominator, your purchase price, is frozen, while dividend-growth companies raise the numerator almost every year. After a decade of 7% dividend increases, your yield on cost roughly doubles even if the share price never moves.

Is a high yield on cost a reason to keep holding a stock?

Not by itself. Yield on cost is a look backward at money already invested. Decisions today should weigh the current yield, payout safety, and growth outlook, because the market pays future prices, not your cost basis.

By the Dividend Payout Calculator editorial team · 2026-10-15 · How we calculate

What Is Yield on Cost? The Dividend Metric That Grows Under You

Q: What is yield on cost?

Yield on cost (YOC) is your annual dividend divided by the price you originally paid for the shares, rather than their current market price. It shows the income your investment actually earns on your own cost basis.

Yield on cost (YOC) is the annual dividend a stock pays you divided by the price you originally paid for it. Buy a stock at $50 that now pays $3 a year in dividends, and your yield on cost is 6% — even if the share price has doubled since. Where the regular dividend yield tracks today's price, yield on cost tracks your own cost basis, which is why long-term dividend investors watch it climb year after year.

Yield on cost formula

Yield on cost = Annual dividend per share ÷ Average cost per share

Worked example: you bought 100 shares at $40 each, a $4,000 position. The company has raised its dividend from $1.60 to $2.40 over the years. Your yield on cost is $2.40 ÷ $40 = 6%, while a new buyer at $80 sees only a 3% current yield. Same dividend, two very different realities — that gap is the entire appeal of buy-and-hold dividend investing.

To see how reinvested dividends accelerate this, run your numbers through the DRIP calculator; reinvestment buys more shares, which pay more dividends, which raises your effective yield on cost further.

Why yield on cost rises every year you hold

The denominator never changes. Your cost is locked in on the day you buy, but dividend-growth companies raise the numerator annually. A company growing its dividend 7% a year doubles it in about a decade. Hold quality dividend growers long enough and the yield on cost can exceed 100% of the original investment — the stock pays you more each year than you paid for it in total, while you still own the shares.

This mechanic is why yield on cost is the natural companion to a dividend reinvestment plan: reinvested dividends compound the position, and each raise compounds on top of the larger holding.

Yield on cost versus current yield

	Current yield	Yield on cost
Dividend ÷ what?	Today's share price	Your original purchase price
Changes when price moves	Yes, daily	No
Changes when dividend changes	Yes	Yes
Useful for	Comparing buys today	Tracking what your holding earns for you

The trap: yield on cost is a rearview mirror

The metric has honest critics. Your cost basis is irrelevant to anyone else — the market prices the stock on its future, not your past. A stock with a 9% yield on cost and deteriorating fundamentals is not automatically a hold; the alternative today is selling and redeploying at the current yield elsewhere. Use yield on cost to measure what patient ownership has earned you, not to justify holding a broken story. Pair it with the payout ratio: a rising yield on cost only matters if the dividend is safe.

How to grow yield on cost faster

Buy quality at a reasonable price. The lower the entry cost, the higher every future dividend reads as yield.
Favor dividend growers over high current yielders. Growth compounds the numerator; a frozen payout freezes your YOC.
Reinvest dividends during flat and down markets, when reinvestment prices are lowest — the shares bought cheapest raise your average yield on cost the most.
Check affordability before buying: a dividend growing 8% a year from an 85% payout ratio is a promise that math will eventually break. Start with the payout ratio, then project the income with the dividend growth calculator.

Frequently asked questions

Try the dividend calculator or browse all dividend articles. Educational only — not financial advice.