Yield on Cost vs. Current Yield: Which Number Actually Matters?
Most dividend investors are tracking the wrong yield. Current yield tells you what you'd earn if you bought today. Yield on cost tells you what your original investment is actually earning right now. They're measuring different things — and confusing them leads to bad decisions.
The Definitions, Plainly
Current yield is the annual dividend divided by the current share price. It answers the question: if I bought this stock today, what yield would I receive?
Yield on cost (YoC) is the annual dividend divided by what you originally paid per share. It answers a different question: given what I paid, how hard is my capital actually working?
For a new purchase, the two numbers are identical. For a stock you've held for five years while the dividend has grown, they can be very different.
Example: Enbridge (ENB) — 5-Year Hold
- • Purchase price: $42.00/share in 2021
- • Annual dividend then: $3.34/share
- • Current price: $60.00/share
- • Annual dividend now: $3.94/share
- • Current yield: 3.94 ÷ 60.00 = 6.6%
- • Yield on cost: 3.94 ÷ 42.00 = 9.4%
The stock looks like it yields 6.6% to anyone who didn't own it five years ago. To the investor who bought at $42, it's effectively yielding 9.4% on their original capital — a number that gets better every time the dividend is raised.
When Each Number Is Useful
The mistake most investors make is using one number for every purpose. Each yield metric answers a specific question — use the right one for the job.
| Question | Use This |
|---|---|
| Should I buy this stock today? | Current yield |
| How well is my original investment performing? | Yield on cost |
| Should I sell and redeploy to something higher-yielding? | Current yield of both |
| Is my dividend growth compounding meaningfully? | YoC trend over time |
The YoC Trap: When It Becomes a Comfort Number
Yield on cost is motivating — watching it climb as dividends grow is one of the best feelings in income investing. But it can also become a reason to hold a deteriorating position longer than you should.
If a company cuts its dividend, your yield on cost collapses instantly. The high YoC you were proud of was built on a payout that no longer exists. Current yield is always the honest picture of what you'd earn if you bought today — and if that number looks unattractive relative to alternatives, the YoC on your existing position isn't a reason to stay.
⚠ The Redeployment Test
Before citing your yield on cost as a reason to hold, ask one question:
“If I sold today and redeployed the proceeds, would the current yield on the new position beat or match my yield on cost?”
If the answer is yes, holding on the basis of YoC alone may be costing you income.
How Dividend Growth Turbocharges Yield on Cost
The real power of yield on cost shows up over long holding periods in dividend-growth stocks. A company that raises its dividend by 6% per year doubles its payout in roughly 12 years. On your original cost basis, that means your effective yield doubles too — without you doing anything.
$10,000 Invested at 4% Yield, 6% Annual Dividend Growth
- • Year 1 income: $400 — YoC: 4.0%
- • Year 5 income: $535 — YoC: 5.4%
- • Year 10 income: $716 — YoC: 7.2%
- • Year 20 income: $1,283 — YoC: 12.8%
The share price may have risen significantly over 20 years, making the current yield look modest at 3–4%. But the long-term holder is earning 12.8% on their original capital — every year, in cash.
Prospyr's Dividend Calculator lets you enter your cost basis alongside your current dividend rate so you can see both yields side by side — and track how your yield on cost has grown over time.
Calculate Your Yield on Cost
Enter your shares, cost basis, and current dividend to see both your current yield and yield on cost — and understand what your original investment is really earning.
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This is informational only, not licensed financial advice. Prospyr does not recommend specific securities or investment strategies. Always consult a qualified financial advisor before making investment decisions.