Last verified: September 23, 2026.
Yield on cost, often shortened to YOC, is the dividend a stock pays you today divided by what you paid for it, not what it trades at now. Buy a share at $50 that pays $2 a year and your yield on cost is 4%. Ten years later, after the dividend has grown 5% a year to $3.26, you're collecting 6.5% on that original $50, even though someone buying today might see a 4% yield on the quote screen.
That gap is why long-term dividend investors track the number. This guide covers the formula, how to work it out when you keep buying or reinvest, what taxes do to it, and where it misleads people. You can run your own figures in our dividend calculator, which reports YOC alongside income and portfolio value. It's researched from IRS and SEC material and isn't investment advice.
The yield on cost formula
For a single purchase, the formula is simple:
Yield on cost = current annual dividend per share ÷ your cost per share × 100
Say you bought 200 shares at $50, a $10,000 position. The company paid $2.00 per share then and pays $3.26 now.
- Annual dividend income: 200 × $3.26 = $652
- Your cost: $10,000
- Yield on cost: $652 ÷ $10,000 = 6.5%
The denominator never changes unless you buy more shares. That's the whole point: your cost is fixed in the past, while the dividend, you hope, keeps climbing.
YOC vs dividend yield
Both use the same dividend. They differ in what you divide by.
| Dividend yield | Yield on cost | |
|---|---|---|
| Divides by | Today's share price | What you paid |
| Changes when | The price moves, every day | You buy more shares, or the dividend changes |
| Same for everyone? | Yes | No, it's personal to your purchase |
| Useful for | Comparing stocks you might buy | Tracking what a holding pays you over time |
A stock can have a 2.5% dividend yield and give you a 9% YOC at the same time. The first is what new money buys. The second is what your old money earns.
Working it out when you keep buying
Most guides stop at the one-purchase version, which is no help if you buy every month. When you add to a position, use dollars rather than per-share numbers:
YOC = total annual dividends received ÷ total dollars you have invested × 100
Each new purchase adds to the denominator at today's price, so the figure falls the moment you buy and then climbs again as the dividend grows. A saver putting in $500 a month for 20 years, starting with $10,000 at a 4% yield with 5% dividend growth, ends with about $130,000 invested and roughly $16,015 of dividend income a year in our calculator. That's a YOC of about 12.3%, well below what the original $10,000 alone would show, because two decades of fresh purchases keep resetting the average.
Neither number is wrong. They answer different questions: one is about the first check you wrote, the other about every dollar you've committed.
What reinvesting does to your YOC
The SEC describes dividend reinvestment plans plainly: they let you buy more shares of a stock you already own with the dividend payments, and your broker or the company may charge for the service.
Here's the part that confuses people. Reinvesting raises your dividend income in dollars, but whether it raises your YOC depends on how you count the reinvested shares. Count them as free, and the percentage soars. Add them to your cost basis at the price you paid, and the number stays closer to the market yield.
The dollars are not in doubt. Take that $10,000 at a 4% starting yield, with the dividend growing 5% a year and the share price 4%:
| Years | Reinvested: income | Reinvested: value | Dividends taken as cash: income | Cash: value |
|---|---|---|---|---|
| 10 | $907 | $22,207 | $621 | $14,802 |
| 20 | $2,302 | $51,352 | $1,011 | $21,911 |
| 30 | $6,106 | $124,157 | $1,646 | $32,434 |
After 30 years, reinvesting produces nearly four times the annual income from the same $10,000. Measured against the original outlay, that's a YOC of about 61%, against 16.5% for the investor who spent every payout. This effect is what people mean by the dividend snowball: each payout buys shares that pay their own dividends.
Yield on cost is a pre-tax number
In a taxable account, the figure on your tracker is not what reaches you. Most US dividends from US companies are qualified, which means they're taxed at long-term capital gains rates rather than as ordinary income, as the IRS explains in Topic 404. To qualify, you must hold the shares more than 60 days during the 121-day period that starts 60 days before the ex-dividend date, a rule spelled out in IRS Publication 550.
The rates are 0%, 15% or 20%. For 2026, Revenue Procedure 2025-32 sets the breakpoints:
| Filing status | 0% up to | 15% up to | Above that |
|---|---|---|---|
| Single | $49,450 | $545,500 | 20% |
| Married filing jointly | $98,900 | $613,700 | 20% |
| Head of household | $66,200 | $579,600 | 20% |
| Married filing separately | $49,450 | $306,850 | 20% |
On top of that, higher earners owe the 3.8% Net Investment Income Tax once modified adjusted gross income passes $200,000 for single filers or $250,000 for joint filers.
Run the same 20-year example with a 15% rate and the yearly income drops from $2,302 to $2,035, with about $3,034 paid in tax along the way. Your after-tax YOC is roughly 20.3% rather than 23%. In an IRA or a 401(k), that tax drag disappears while the money stays inside the account, which is one reason dividend investors favor those wrappers. Our guide to 403(b) and 401(k) plans covers how those accounts differ.
Where the number misleads people
Every guide warns that the number is backward-looking. Few show what that costs you. Suppose a holding is now worth $50,000, pays $1,250 a year, and shows a 9% YOC because you bought it cheaply in 2008. A boring utility trading today at a 4% yield would pay $2,000 a year on that same $50,000.
Your 9% doesn't buy groceries. The $1,250 does. What you paid in 2008 is spent and gone, so the only fair comparison is what your money earns from here. Use it to see how a position has developed, and current yield, dividend safety and growth prospects to decide what to own next.
The other trap is a figure that jumps because the share price collapsed. If the price falls hard, the current yield rises and the dividend may be at risk. The SEC's reminder is blunt: there's no guarantee a company will grow and do well, and a cut drops your YOC with it.
Using YOC to plan dividend income
If the goal is living off dividends, work backwards from the income you need and the yield your portfolio actually pays today, not from YOC.
Portfolio needed = annual income ÷ portfolio yield
For $1,000 a month, or $12,000 a year, at a 4% yield, you need about $300,000. At 3%, it's $400,000. YOC then becomes the progress bar: it shows how much of that income is coming from dividend growth rather than fresh savings.
Three things move the finish line: how much you invest, the yield you buy at, and dividend growth. The calculator lets you change all three, plus reinvestment and tax, so you can see which one matters most for your timeline. If you're planning the drawdown phase too, read how long your money will last in retirement.
How to track your own figure
- Find your total cost basis for the position, including commissions. Your broker lists it.
- Decide how to treat reinvested shares, then stick with it. Adding them to cost basis is the conservative choice.
- Work out the annual dividend: current dividend per share times shares owned.
- Divide the dividend by the cost, and note the date next to the figure.
- Recheck after every dividend raise, cut or purchase.
Put those inputs into the dividend calculator and it does the same arithmetic forward, showing the YOC you'd reach in 10, 20 or 30 years under your own assumptions.
Frequently asked questions
What is a good yield on cost?
There's no benchmark, because it depends entirely on when you bought. A holding you bought 15 years ago might show 10% or more, while last month's purchase sits at the current yield. Judge a position by its dividend growth and safety instead.
Does reinvesting dividends increase your YOC?
It increases your dividend income in dollars, always. Whether the percentage rises depends on whether you add reinvested shares to your cost basis. If you do, the figure stays closer to the market yield.
Is yield on cost the same as dividend yield?
No. Dividend yield divides by today's share price and is the same for everyone. YOC divides by what you paid, so it's personal to you and only changes when you buy more or the dividend changes.
How much do I need invested to make $1,000 a month in dividends?
About $300,000 at a 4% portfolio yield, or $400,000 at 3%. Reinvesting and dividend growth get you there faster than yield chasing does.
Are dividends taxed?
In a taxable account, yes. Qualified dividends are taxed at 0%, 15% or 20% depending on your income, with an extra 3.8% for higher earners. Dividends inside an IRA or 401(k) aren't taxed while they stay in the account.
