Yield on cost is an important metric for dividend investors because it represents the return on their initial investment in a particular holding.
It allows investors to track how their dividend income has increased or decreased over time, and helps them evaluate the performance of their portfolio over the long term.
To calculate the yield on cost for the portfolio, we use the following formula:
Yield on Cost = (Total Dividends Paid in the Last 12 Months) / (Total Cost Basis of Portfolio)
Total Cost Basis = Sum of average buy-ins + transaction costs + paid taxes for buys
Example:
Your investment is €1,000 (€997 invested in stocks + €2 transaction costs + €1 buy taxes).
You received €100 in dividends in the last 12 months.
Yield on Cost = €100 divided by €1,000 = 0.1 or 10%