A high dividend yield on cost a good thing for you as an investor and you can achieve it by holding your stocks long term for the rising dividend income.
So what is yield on cost anyway?
It is the yield that you are getting from a dividend stock measured against the original price you paid for the shares.
Here’s an example to clear things up...
Say you purchased 100 shares of XYZ Financial at $13.56 a share in 1997 for a total of $1359.00.
At the time they were paying out 0.54 a share in dividends. So the yield was 4% and your total dividend income was $54.00 annually.
Fast forward to today and the market price of XYZ is now $48.50 and the company is paying out $2.52 per share in dividends.
So the current market value of your XYZ shares is $4850.00 and your annual dividend income has grown to $252.00!
To calculate your yield on cost (YOC)....
CURRENT YIELD/ORIGINAL SHARE PRICE = 2.52/13.56 = .01858 or 19%
You are now getting a 19% yield on your original investment... not too shabby!
The reason we hold dividend yield stocks is for the rising income and the YOC metric is an excellent way to keep score. It shows you how well its working!
YOC can also be a useful way to compare the performance of your stocks. You can compare companies that began with similar dividend yields to see which performed the best over the holding period.
If you find that one of your companies is consistently lagging in performance compared to the rest of the pack, then it might be time to say goodbye.
Every company has to perform as a part of your compounding machine... your financial freedom depends on it!
So that’s a wrap. The moral of the story... hold onto your dividend achievers for the rising income and yield on cost!