Yield on Cost (YOC) is a financial metric that helps investors evaluate the long-term performance of their dividend-paying investments. It measures the annual dividend income an investor earns relative to the original purchase price of the stock. In simple terms, it shows how much return you’re receiving today on the amount you initially invested — not the stock’s current market value.

The formula to calculate Yield on Cost is straightforward: YOC = (Annual Dividend per Share ÷ Purchase Price per Share) _ 100. For example, if you purchased a stock at _100 and it now pays an annual dividend of _8, your yield on cost would be 8%. Over time, as companies increase their dividend payouts, your YOC can grow even if the stock price fluctuates in the market.

This metric is particularly valuable for long-term investors who focus on income growth through dividends. While the current dividend yield (based on the stock’s present price) is useful for evaluating new investment opportunities, the yield on cost helps assess the success of past investments and the effectiveness of a dividend reinvestment strategy.

It’s important to note that YOC should not be the sole factor in making investment decisions. Investors should also consider the company’s financial health, dividend sustainability, payout ratio, and overall market conditions. YOC provides a historical perspective on investment performance, not a forward-looking measure of future returns.

In summary, Yield on Cost is a helpful tool for tracking how your dividend income has grown relative to your original investment. It reflects the power of compounding and disciplined investing, encouraging investors to focus on long-term wealth creation rather than short-term market fluctuations.