Portfolio Clarity Foundations
Yield on Cost
Definition
The dividend income received expressed as a percentage of the original purchase price rather than the current market value.
Why it matters
It shows the income return on the original capital invested. It grows over time as dividends increase even if the share price has not moved.
What most investors miss
The gap between what the term means and how it is usually applied.
They compare yield on cost across holdings without accounting for opportunity cost. A high yield on cost from an underperforming holding may not be the best use of that capital.
How to read it
Use yield on cost to understand the income history of a long-held position. Do not use it to make current allocation decisions. Current yield is more relevant for that.
Multi-account lens
How this term reads differently across brokers and accounts.
Yield on cost varies by account depending on when each account purchased the same holding. Across a multi-account portfolio holdings bought at different prices have different yields on cost even for the same ticker.
Concrete example
What this looks like with real numbers.
Scenario
An investor bought 1,200 shares of a UK REIT at £7.80 in 2017. Current price: £19.40. Annual dividend: £1.26/share. Yield on cost: 16.2%. Current yield: 6.5%. Both numbers are real — yield on cost captures the compounding benefit of time; current yield is what a new buyer receives today.
What it reveals
Yield on cost is most useful as a holding-quality signal over time. It should not justify keeping a position whose thesis has changed — but it can clarify why the original position is worth holding.
Related terms
Terms that connect to yield on cost.
Cost Basis
The original purchase price of a holding used to calculate the gain or loss when the position is sold.
Dividend Yield
The annual income generated by the portfolio's dividend-paying holdings expressed as a percentage of portfolio value.
Dividend Income
The cash or reinvested shares received from holdings that pay regular distributions.
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