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Yield on Cost (YOC)

Yield on Cost (YOC) is a measure used by investors to assess the annual dividend yield they receive based on the original purchase price of a stock, rather than its current market value. It reflects the income an investor earns relative to their initial investment and helps gauge the effectiveness of dividend-paying stocks over time. As dividends increase, the YOC for a long-term investor can rise, showing the income benefit of holding a stock over time.

Example

An investor buys a stock at $50 per share, which pays an annual dividend of $2, giving a current yield of 4%. After a few years, the dividend rises to $3, and the investor’s YOC is now 6%, based on the original purchase price.

Key points

• A measure of the dividend yield based on the original purchase price of a stock.

• Helps investors assess how much income they are earning relative to their initial investment.

• YOC increases over time as dividends rise, rewarding long-term investors.

Quick Answers to Curious Questions

YOC is calculated by dividing the current annual dividend by the original purchase price of the stock.

It helps long-term investors track how their dividend income has grown relative to their initial investment, rewarding them for holding onto the stock as dividends increase.

YOC is based on the original purchase price of the stock, while the current dividend yield is based on the stock’s current market value.