Yield define finance8/11/2023 Investors should be aware of the limitations of the yield on cost metric and understand that, like the dividend yield, it doesn’t necessarily paint the full picture.Ĭheck out our Best Dividend Stocks page by going premium for free. In reality, the shareholder has suffered a significant loss.įurther, the company may have cut the dividend down partially or completely in light of the likely financial turmoil the company experienced that caused its stock price to drop in half. In this scenario, the yield on cost would remain the same and may give the perception that shareholders are still enjoying returns. Using the previous example, if XYZ stock dropped to $10 per share, the shareholder would have lost 50% of the principal value of the investment. On the downside, the yield on cost only takes into account the dividend paid by the company and doesn’t look at total return. It may or may not be easily ascertainable looking at the dividend yield because the share price regularly moves up and down.įind out all the companies that have increased their dividends for more than 25 consecutive years on our 25-year dividend-increasing stocks page. If a company grows its dividend at a 5% annual rate, that increase will show up in the yield on cost. Assuming that no additional share purchases are being made, the cost basis of the investment remains constant. On the plus side, yield on cost can provide an indicator of dividend growth. A dividend yield is a ratio expressed as a percentage that shows how much a company pays its shareholders in dividends relative to its share price. While this is true, it may not give an accurate portrayal of how the security is performing currently. Investors like to look at their account statements and feel like they’re earning 10-20% annually on their original investment. In many ways, the yield on cost is a “feel good” measure. The big question is whether or not yield on cost adds any informational value beyond what the dividend yield provides.
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