Buy $10,000 of a stock yielding 3% and it pays you about $300 a year. Your yield on cost is 3% — annual income divided by the money you put in. Now suppose the company raises its dividend 7% a year, a pace plenty of established payers have managed over long stretches. After ten years that same position pays roughly $590 a year. A new buyer still sees a yield near 3%, because the price rose alongside the payout. But your yield on cost is now about 5.9% — your original dollars are working nearly twice as hard.
year 1: $300 income on $10,000 = a 3.0% yield on cost
year 10: ≈$590 income on the same $10,000 = 5.9%
a new buyer that day still sees ≈3% — the price rose with the payout
That is the number’s appeal: it measures your progress. It rewards the two things a dividend investor actually controls — buying a payer that raises its dividend, and giving those raises time to stack. It is also why the main calculator shows yield on cost next to portfolio value: two investors can own the same fund and be having completely different experiences of it.
Used carelessly, though, yield on cost flatters. It says nothing about what the position is worth today, or what that capital could earn elsewhere. A 12% yield on cost in a company whose price and business have halved is not a triumph; it is a high return on a shrinking asset. And sunk cost cuts both ways — holding a weak payer ‘because my yield on cost is great’ ignores that you could sell and redeploy the full market value, not the amount you once paid.
The balanced view: track yield on cost to see your income compounding, but judge the holding itself on today’s yield, today’s payout safety and today’s price. The calculator shows both lenses on the same projection — final-year income against your total contributions, and against the portfolio’s final value.