Comments on: Yield on Cost: Measuring for Success

By: Progress Update - March 2009 | Dividends Value

Progress Update - March 2009 | Dividends Value — Sat, 04 Apr 2009 10:31:26 +0000

[...] the month, annualized dividend income increased $83, and Yield on Cost (YOC) decreased -0.11%. These changes were a net of new purchases, dividend changes and sales. [...]

By: Dividends4Life

Dividends4Life — Sun, 11 May 2008 03:47:00 +0000

TheLocoMono: YOC is really a metric that measures dividend yield and dividend growth. In effect it calculates a yield by basis by current annual income. This shws the effect of not only the initial yield, but the compound growth of that yield. That is why some stocks with a low initial yield are better buys than some with a higher yield. My NPV MMA Diff. calculation looks at this over 20 years and discounts it back. The higher the number the better.

Hope this made some sense.

Best Wishes,
D4L

By: TheLocoMono

TheLocoMono — Sat, 10 May 2008 19:40:00 +0000

It is simply the annual dividend rate times number of shares owned divided by what you paid for the investment (basis).

I am a little lost.

Using your example with RY, am I right in understanding that based on the YOC that RY is better to buy in 2006 than it was in 1997?

If you bought one share in 1997 and one share in 2006, how does this affect the YOC?

I suppose I am just trying to figure out if YOC is more of an effective measurement for when to buy if the stock is low and you know the company has a history of raising dividends/consecutive dividend payouts.

By: Dividends4Life

Dividends4Life — Sat, 01 Dec 2007 15:11:00 +0000

KO is currently trading at a significant premium based on my models.

You have to look at YOC in layers for a single investment. As noted in my Investing Goals post, YOC will be more sensitive to the yields of what I am buying, versus dividend increases in the early years due to the relative size of the purchases versus the portfolio size. When I wrote the YOC article my YOC was 4.95%, and after a couple of purchases it is now 4.88%.

Comparing today's yield with YOC for my BAC holdings, it would not look good in total (5.93% yield today vs. 5.39% YOC). However it looks like this if you break it down in layers:

Date Pur.. Yield@Pur. YOC
04/22/05... 4.01% ... 5.71%
04/13/06... 4.34% ... 5.56%
01/12/07... 4.15% ... 4.75%
07/05/07... 5.18% ... 5.18%

I love watching that 04/22/05 layer's yield shoot up!

By: moneygardener

moneygardener — Sat, 01 Dec 2007 00:25:00 +0000

Interesting point on KO vs. RY on YOC. KO kind of got to bubbly valuation in 1997 so I'm assuming it would have been ruled 'too expensive' to the cautious eye.

I have been investing for a short time but my best YOC differential is 0.3% difference with several of my holdings includng RY and BAC.

I also find this statistic very interesting. It really shows the pace of dividend growth and the pace of share price growth at the same time. I guess in the case of RY vs. KO it shows whether or not dividend growth was paired to share price growth as it was with RY and not KO.

By: Dividends4Life

Dividends4Life — Wed, 21 Nov 2007 03:28:00 +0000

FJ: That is an excellent point! So many times we subconsciously forget to consider the tax ramifications. Trading is not free – from many standpoints…

Best Wishes,
D4L

By: FinancialJungle

FinancialJungle — Wed, 21 Nov 2007 02:55:00 +0000

In addition to YOC and current yield, you can also measure yield based on the after-tax capital. For example, if you think your stock AAA is overvalued, and are considering selling it to purchase BBB, you first must calculate how much capital remains after selling AAA.

Say $100 in AAA is distributing $3. If the embedded capital gain tax is $20, then your yield on after-tax capital is $3/$80 = 3.75%. If BBB is yielding 3.5%, maybe you want to keep AAA even though the current yield is only 3%.

(I'm assuming both AAA and BBB have identical fundamentals.)