What is yield on cost and why does it matter?

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Yield on cost (YoC) is the current annual dividend divided by your original purchase price, not the current price. If you bought a stock at $50 paying $1, your YoC is 2%. If the dividend grows to $4 over a decade, your YoC is 8% — even if the current yield on the market price is still 2%. YoC measures the income return on capital you actually deployed. Spot yield is a property of the stock; yield on cost is a property of your position. Dividend growth investors care about YoC because it captures the compounding effect of holding through years of raises. The mechanics: spot yield uses the current share price as the denominator, so it stays roughly constant for steady payers. YoC uses your cost basis, which doesn't change after purchase. As the dividend grows, the numerator grows but the denominator doesn't — and YoC ratchets higher each year. A practical example: bought at $50 with a $1 annual dividend = 2% starting yield. Ten years later the dividend is $3.50, and the stock trades at $120. The market sees a current yield of 2.9%. But your YoC on the $50 cost basis is 7% — and rising every year. YoC is the metric retirees use to plan income. A portfolio with a 3% blended starting yield and a 7% growth rate produces a YoC of 6% within a decade and 12% within two decades. That is the income runway long-term dividend growth investing actually delivers.