This week I read a nice article about Yield on Cost (YOC) from Simple Safe Dividend.
As we all know YOC is a common metric for Dividend Growth Investors to measure and manage their portfolio. And I’m one of them ;-). And I think that’s the one of the reasons the article got my attention.
Simple Safe Dividend states that Yield on cost measures the rate of dividend income that your original investment earns today. Yield on cost is essentially the dividend yield based on your initial investment in a stock. If a company increases its dividend after you purchased shares, you will enjoy a higher rate of income return on your original investment – your yield on cost rises. And of course when a company cuts its dividend, your YOC will decrease.
Yield on cost shows you whether a stock’s dividend has been rising or falling since your investment was purchased.
I like tracking my yield on cost of my holdings to see the power of consistent dividend growth. I think it is exciting to see my investment literally begin to pay for itself with higher dividend income over time.
How to calculate your Yield On Cost
This is a very simple metric to calculate. All you need is a company’s annual dividend and your cost base per share. So to calculate your YOC, you need to divide a company’s annual dividend by the your cost base per share.
It will be a little more difficult when you have made more than one purchase of a company (for instance, when you use Dollar Cost Average). If you want your cost base per share purchase you have to turn to your broker. In this article I use my overall cost base per share.
I track my YOC for my Vrijheid Fonds. In Table 1 you can see my YOC per share.
|Royal Dutch Shell||€||332||24.75||5,922||1.72||6.95%||9.64%|
|Billiton – PLC||$||30||25.40||1,578||0.64||2.52%||1.22%|
|Omega Healthcare Investment||$||144||34.01||4,959||2.32||6.82%||6.74%|
|Procter & Gamble||$||38||85.48||1,510||2.68||3.13%||6.74%|
|South 32 LTD||$||12||6.53||–||0.00|
Table 1. Yield on Cost for my Vrijheid Fonds.
You can see that most of my stocks have a positive YOC compared to the actual Yield. This means that for these shares my dividend growth strategy really works!
Unfortunately my Vrijheid Fonds has three companies were the YOC is lower than the actual yield. For BBL this is because they slashed the dividend in the beginning of this year. OHI and VER are due to lower share price than the original purchase price.
But overall my YOC is positive for my Vrijheid Fonds. The weighted average YOC is 4.87%
The biggest difference between Yield and YOC are from the two companies I own the longest (since 2005). And this also shows that increasing dividend every year gives you an increasing YOC.
YOC does not play a role in my investment decision. As frequent readers of my blog know, for my investment decisions I use the metrics from my Pollie-Code. But yes, I like YOC and my positive weighted average YOC tells me that my dividend growth strategy works.
Do you calculate and track your YOC? And do you use this metric in your investment decisions?