What it is:
How it works/Example:
To calculate dividend by the per-share price you initially paid. You can use the trailing twelve-month dividend or estimate what the dividend be during the next twelve months.
Let's assume you bought XYZ for $10 per share. XYZ pays a $1 annual dividend, and since your purchase, the price of the stock has increased to $15 per share.
The current dividend yield of the stock is $1 / $15 = 6.7%. But the yield on cost (i.e., the on your ) is $1 / $10 = 10%.
Now assume that XYZ boosts its dividend to $1.50 per share. Your yield on cost has increased to $1.5 / $10 = 15%, and the current yield is now $1.5 / $15 = 10%.
If the number of you own doesn't change (either by a dividend reinvestment plan or by buying additional shares at another price), your yield on cost increase as the annual dividend per share increases.
Why it matters:
yield on cost increase as the payout grows.
A to yield on cost is that it can get confusing to calculate the original cost of if you are constantly reinvesting dividends as part of a dividend reinvestment plan (DRP or DRIP).