Yield On Cost - YOC

Yield on cost is a hallowed investment ratio that should be retired from existence, but remains popular as a calculation for dividend investors.

To get the yield on cost, you just compute the quotient of your original investment divided by the current dividend level. It’s a measurement of what your original investment generates in returns. Nothing more.

Let’s say you own shares of a company and it raises the dividend. Then your yield on cost increases. The entire point of this calculation is to track dividend hikes and income growth.

The issue, however, is that this is a review-mirror calculation. The yield on cost neglects inflation rates since share purchase, and the time that has transpired. It doesn’t take into account future growth expectations. It also creates a strong bias not to sell a crappy company just because it has a high yield on cost.