Yield on Cost: The Metric Half of Dividend Investing Calls Useless

By Cedrick Reese · Published August 1, 2026 · Research current as of August 1, 2026 · 12 sources · How this was built

The short version

Yield on cost divides today's dividend by what you originally paid, rather than by today's price. Dividend growth investors treat it as the number that proves the strategy works. A substantial group of analysts consider it a vanity metric that encourages holding things you should have sold. Unusually, both camps agree on where the line sits, and it isn’t where the argument usually happens.

Most dividend metrics are uncontroversial. Yield is yield, payout ratio is payout ratio, and nobody writes furious articles about either.

Yield on cost is different. One camp treats it as the entire point of dividend growth investing. The other has published pieces calling it irrelevant, useless, and a source of delusion. Those are their words, not a characterisation.

So it’s worth understanding what it measures, why the argument is so heated, and where the two sides actually converge.

What yield on cost measures

The formula is trivial:

Yield on cost = Current annual dividend per share ÷ Your cost per share × 100

The only difference from ordinary dividend yield is the denominator. Yield uses today's market price; yield on cost uses what you paid. Seeking Alpha's glossary notes that the metric was popularised by its own dividend growth investing contributors, which explains why the debate has been fought largely on that platform.

A worked example makes the gap obvious. Rob Marstrand uses this one: a stock bought for $50 that now pays $5 a year has a yield on cost of 10%. If the same stock now trades at $200, its dividend yield is 2.5%. Same dividend, same share, two numbers four times apart.

Which one is meaningful is the whole argument.

The case for it

It captures what current yield hides

Lord Abbett argues that focusing only on current yield misses what they consider the real power of dividends: the growth of future income from an investment. Current yield tells you the rate today. It can’t tell you that the payment has tripled since you bought.

They illustrate it with Berkshire Hathaway's Coca-Cola position, noting that Berkshire completed a seven-year purchase for $1.3 billion in 1994, and that the cash dividends from that holding produced $75 million of income for Berkshire in that year. On those figures the yield on cost was already around 5.8% in 1994, and the point of citing it’s what happened to that figure across the decades that followed.

It keeps long-term investors invested

One education page frames the behavioural benefit directly: yield on cost helps investors resist selling appreciated positions when the income on their original investment is significantly higher than available alternatives. Another Seeking Alpha piece makes the same argument, that the metric helps investors stay committed to a dividend growth strategy long enough to benefit from compounding.

Whether that’s a feature or precisely the bug is, as you’ll see, the crux of the disagreement.

It’s stable when prices aren’t

Dividend yield moves with every price tick, which can make short-term comparisons misleading. Yield on cost has a fixed denominator, so it only changes when the dividend changes. For tracking an income stream rather than valuing a security, that stability is the point.

Chuck Carnevale, writing for retired investors, proposes calling it "Growth Yield" instead, on the grounds that the name would better accentuate what the number is actually tracking.

How fast yield on cost actually grows

Since yield on cost only moves when the dividend does, it compounds at the dividend growth rate. That makes it easy to project.

Yield on cost over time, starting from a 3% yield
Years held	5% growth	8% growth	10% growth	12% growth
5	3.83%	4.41%	4.83%	5.29%
10	4.89%	6.48%	7.78%	9.32%
15	6.24%	9.52%	12.53%	16.42%
20	7.96%	13.98%	20.18%	28.94%
30	12.97%	30.19%	52.35%	89.88%

Method: starting yield multiplied by (1 + growth rate) raised to the number of years. These are our own calculations. As a cross-check, they reproduce figures published elsewhere: a 2.5% starting yield at 8% growth gives 11.65% after twenty years on our arithmetic, against the 11.63% published by My Dividend Calculator, and 24.12% at 12% growth against their 24%.

Two things stand out. The growth rate matters enormously, with a 30-year figure ranging from 13% to 90% depending on which column you land in. And the whole projection rests on that rate holding for decades, which no company guarantees.

If you want a growth rate grounded in what a company has actually delivered rather than one you picked, the dividend growth rate calculator derives it from real payment history.

See your own yield on cost

The dividend growth calculator reports yield on cost alongside portfolio value, so you can watch it climb across the projection rather than reading it off a table.

Open the dividend growth calculator

The case against it

The criticism isn’t gentle, and it comes from people who write about dividends professionally.

"Absolutely useless from an analytic perspective"

That’s The Motley Fool's assessment, in a piece titled "The worst metric you'll ever profit from." Their objection is that the number is used to look backward at a run that has already happened, and that after thirty years of a successful holding it can reach spectacular levels that say nothing analytically useful. They allow that it provides a sense of accomplishment, comparing it to a climber looking down from a summit.

"At best irrelevant, at worst leads to poor investment decisions"

Rob Marstrand's critique goes further and includes an accusation about incentives: that many financial newsletter writers favour the metric partly because it makes their past stock picks sound more impressive to the unwary. On his $50-to-$200 example, he characterises the comforting 10% figure as something that may make investors feel warm and fuzzy while carrying no analytical weight.

The opportunity cost problem

Here’s the substantive core, and the one supporters have the hardest time answering. One Seeking Alpha piece argues that an ever-rising yield on cost produces a self-satisfaction that blinds investors to better income opportunities appearing elsewhere.

Work Marstrand's example through. You paid $50, you collect $5 a year, your yield on cost is 10%. The stock now trades at $200. You have $200 of capital tied up producing $5 a year. Redeploy that same $200 into something yielding 4% and you would collect $8. Your income would rise by 60% while your yield on cost, the number you were admiring, would fall off a cliff.

That comparison is our own synthesis rather than a quoted claim, and it deliberately ignores two real complications: selling would likely trigger tax on a large gain, and the 4% alternative may not grow its dividend the way the original holding has. Both matter. Neither is visible in the yield on cost figure either.

Where both sides actually agree

Read enough of this argument and a common line appears, sometimes from unexpected places.

Seeking Alpha's own glossary, on the platform where the metric was popularised, states that yield on cost answers the question of how successful a stock pick was, and then adds the qualification directly: it shouldn’t be used to justify holding on to a stock, unless the investor thinks the stock will continue to grow its dividend.

Dividend.com lands in the same place, describing it as useful for identifying long-term dividend growth history but not a good indicator of current income potential. FasterCapital's conclusion is that it shouldn’t be used as a standalone metric and belongs alongside other indicators.

So the practical distinction, drawing those threads together, is this. Yield on cost is a reasonable scorecard for a decision you already made. It’s a poor basis for a decision you’re about to make. The critics are mostly attacking the second use, and the defenders are mostly defending the first. Framed that way, the two camps are further apart in tone than in substance.

The forward-looking question the metric can’t answer is straightforward to ask directly: given the market value tied up in this position today, is the income it produces competitive with what that capital could earn elsewhere, after tax and accounting for expected growth on both sides? Yield on cost doesn’t address it, and no amount of admiring the number will.

What commentators say

A note on scope: this summary draws on published editorial, brokerage and asset-manager commentary. Research didn’t surface usable first-person investor reviews or forum threads, so nothing below is presented as user sentiment. Nothing has been invented to fill that gap.

Arguments in favour

Current yield alone misses the growth of future income, per Lord Abbett.
It helps investors stay committed long enough to benefit from compounding, per My Dividend Calculator and Seeking Alpha.
Its stability is an advantage over price-driven yield, per FasterCapital.
Chuck Carnevale considers it vitally important for retired investors and suggests renaming it "Growth Yield".

Arguments against

The Motley Fool calls it useless analytically, valuable only as a sense of accomplishment.
Rob Marstrand calls it at best irrelevant and at worst a cause of poor decisions, and raises the incentive of newsletter writers using it to flatter past picks.
One Seeking Alpha contributor argues it produces self-satisfaction that hides better income opportunities.
It ignores opportunity cost and current market reality, per FasterCapital and Diversification.com.

The point of convergence

Both camps, including the glossary of the platform that popularised the metric, accept that it shouldn’t on its own justify continuing to hold a position. That’s a narrower disagreement than the headlines suggest.

Frequently asked questions

What’s yield on cost?

Yield on cost is the current annual dividend per share divided by what you originally paid per share, expressed as a percentage. It differs from dividend yield, which divides the same dividend by today's market price. A stock bought at $50 that now pays $5 a year has a yield on cost of 10%.

How do you calculate yield on cost?

Divide the current annual dividend per share by your cost per share and multiply by 100. If you’ve bought more shares since, use your average cost across all purchases rather than the price of the first lot, or the figure will overstate how well the position has done.

Is yield on cost a useful metric?

It’s genuinely contested. Supporters argue it captures the growth of income that current yield hides. Critics argue it’s backward-looking, ignores opportunity cost, and encourages attachment to positions that no longer deserve the capital. Both camps largely agree it describes a past decision well and shouldn’t by itself justify a future one.

Why do critics say yield on cost is misleading?

Three reasons recur. It ignores what your capital is worth today, so a high figure can coexist with a poor current yield on a much larger market value. It’s backward-looking and says nothing about whether the dividend is safe going forward. And a falling share price raises the figure relative to the current price, which can make a deteriorating position look rewarding.

Does yield on cost mean I should never sell?

No, and this is the core of the criticism. If a holding has appreciated a great deal, the relevant comparison is between the income it produces now and the income the same market value could produce elsewhere. A high yield on cost doesn’t answer that question, because it measures against a price you paid years ago rather than the capital you currently have tied up.

How fast does yield on cost grow?

It compounds at the dividend growth rate. A 3% starting yield growing at 8% a year reaches about 6.5% on cost after ten years and about 14% after twenty. At 5% growth the same starting yield reaches about 4.9% after ten years and about 8% after twenty. The whole effect depends on the growth rate holding, which isn’t guaranteed.

Sources

Research current as of August 1, 2026. The yield on cost table above is our own calculation, produced with the method shown and cross-checked against source 10.

Disclaimer: This article is for informational and educational purposes only and is not financial, investment, or tax advice. It describes a disagreement among published commentators and does not endorse either position. Projections shown hold the dividend growth rate constant, which real companies do not guarantee. Dividends can be reduced or eliminated at any time. Nothing here is a recommendation to buy, sell, or hold any security. Always consult a qualified financial professional before making investment decisions.

Last updated: August 1, 2026