What is a good yield on cost?
There is no threshold, and anyone giving you one is selling certainty they do not have. Yield on cost has no meaning without two other facts — where you started and how long you have held — and once you have those, the number almost interprets itself.
Why there is no single good number
Yield on cost is the current annual dividend divided by the price you paid. Because the denominator is frozen at purchase and the numerator grows with every dividend increase, the figure rises on its own over time. Hold anything with a rising dividend for long enough and the number gets impressive.
That is what makes a fixed benchmark meaningless. A 9% yield on cost is excellent after eight years and unremarkable after thirty. A 5% is disappointing from a 4% start and outstanding from a 1.5% one. The number alone tells you nothing; the number plus a starting point and a duration tells you everything.
The three comparisons that do mean something
1. Against your own starting yield
This is the comparison the metric is actually built for, because the ratio between the two is how much the dividend has grown. A 4% start that has become 7.9% means the dividend has roughly doubled. A 4% start still sitting near 4.3% after a decade means it has barely moved, and the growth thesis you bought is not happening.
2. Against what a new buyer gets today
If your yield on cost is 15% and the stock's current yield is 3%, you are being paid five times what someone buying the same shares this morning would receive. That gap is the whole reward for having held — and it is also a useful reality check, because it is the gap, not your figure, that reflects the company's actual performance.
3. Against a risk-free rate
A yield on cost below what government bonds pay is worth sitting with for a moment. You took equity risk — price volatility, the possibility of a cut, single-company exposure — and you are being paid less than the risk-free alternative for it. That is not automatically a reason to sell, but it is a reason to ask why you are holding.
What actually decides your yield on cost
Not the starting yield. The dividend growth rate. Here is the same 4% starting yield after twenty years, with nothing changed but how fast the dividend rises:
| Dividend growth | Yield on cost after 20 years | Dividend doubles every |
|---|---|---|
| 3% a year | 7.22% | 23.4 years |
| 5% a year | 10.61% | 14.2 years |
| 7% a year | 15.48% | 10.2 years |
| 9% a year | 22.42% | 8.0 years |
| 11% a year | 32.25% | 6.6 years |
Same starting yield, same twenty years, and the outcome runs from 7.2% to 32.3%. The growth rate did every bit of that. Which is why dividend-growth investors watch the record of increases, the payout ratio and the coverage far more closely than they watch the headline yield.
What "good" looks like at each stage
Yield on cost is a patience metric. From a 4% start growing 7% a year:
| Years held | Yield on cost | What it means |
|---|---|---|
| 0 | 4.00% | your starting yield |
| 5 | 5.61% | working, but unremarkable |
| 10 | 7.87% | the dividend has roughly doubled |
| 15 | 11.04% | double digits, and the curve is bending |
| 20 | 15.48% | nearly four times the starting yield |
| 30 | 30.45% | the position pays back its cost roughly every three years |
Notice how little happens early. Five years in you are at 5.61% and it feels like nothing is working — which is exactly the point at which most people conclude the strategy is a dud. There is no way to hurry this, and no yield on cost figure at year five that would be evidence of anything much.
The trap: a higher yield on cost that pays you less
This is the finding that should change how you read the metric, and it is why "what is a good yield on cost" is close to the wrong question.
Three strategies, $100 invested in each, held twenty years:
| Strategy | Yield on cost at year 20 | Total dividends actually collected |
|---|---|---|
| 6% starting yield, 2% growth | 8.92% | $149 |
| 4% starting yield, 7% growth | 15.48% | $175 |
| 2% starting yield, 12% growth | 19.29% | $161 |
The last row has the highest yield on cost of the three and is not the strategy that paid the most money. It collected $161 against the middle row's $175, because it was paying almost nothing during the years when the middle option was paying well.
Yield on cost tells you where the dividend ended up. It says nothing about how much cash reached your account along the way. Both matter, and only one of them is a yield — so a portfolio optimised for a high yield on cost is not necessarily a portfolio optimised for income.
What yield on cost cannot do
- It cannot tell you whether to keep holding. The money tied up in the position is worth today's market value, not the price you once paid. Hold-or-sell belongs to current yield, valuation and prospects.
- It cannot be compared between investors. Two people holding the same stock have different yields on cost purely because they bought on different days.
- It cannot survive a dividend cut. One cut resets the whole picture, and no yield on cost figure predicts one.
- It cannot be improved by buying more. Adding shares at today's price pulls your average cost up and your yield on cost down, even though you now own more of a good thing.
So — what is a good yield on cost?
The most honest answer available: one that is meaningfully above your starting yield, achieved in a time frame that implies real dividend growth, on a dividend that is comfortably covered.
As a rough orientation rather than a rule: from a typical 3–4% starting yield, roughly doubling your yield on cost within a decade means the dividend has been growing at around 7% a year, which is a healthy dividend-growth outcome. Getting there in five years implies growth most companies cannot sustain. Not getting there in fifteen implies the growth you were counting on is not arriving.
And whatever your number is, check it against the total dividends you have actually received. If those two disagree about how well things are going, believe the cash.
Frequently asked questions
What is a good yield on cost?
There is no universal threshold, because it depends entirely on your starting yield and how long you have held. The useful comparison is against your own start: a 4% yield that has become about 7.9% means the dividend has roughly doubled. What decides the outcome is the growth rate — the same 4% start becomes 7.22% at 3% growth and 32.25% at 11% over twenty years.
Is a high yield on cost always good?
No. Time alone inflates it, and it can be higher on a strategy that pays less. Over twenty years a 2% yield growing 12% reaches a yield on cost of 19.29% while a 4% yield growing 7% reaches 15.48% — yet the second collects $175 per $100 invested against the first's $161, because it paid more in the early years.
What yield on cost should I have after 10 years?
From a 4% starting yield, ten years of 7% dividend growth gives about 7.87%. But the honest benchmark is not someone else's number — it is your own starting yield. If it has barely moved in a decade, the dividend has not been growing, and that is the finding, not the figure.
How long does yield on cost take to double?
The dividend doubles in ln(2) ÷ ln(1 + g) years and yield on cost doubles with it, because the denominator is fixed at your purchase price. At 7% growth that is about 10.2 years; at 11% about 6.6; at 3% about 23.4.
Should I use yield on cost to decide whether to buy or sell?
No. The capital in the position is worth today's market value, so buy-and-sell decisions belong to current yield, valuation and prospects. A high yield on cost is a record of what already happened, and treating it as a reason to keep holding is the sunk-cost fallacy wearing a percentage sign.
Method & sources
- Every figure here was produced by the yield on cost calculator's own engine — YOC = D×(1+g)n ÷ P — and is reproducible by entering the same inputs.
- The three-strategy comparison assumes dividends are collected rather than reinvested, so the totals are the cash actually received per $100 invested.
- Reviewed:
Educational estimate, not financial advice. Dividends can be cut or suspended at any time.
Work out your own
Enter what you paid, what it pays now and how fast the dividend has been growing — and see where your yield on cost lands in five, ten and twenty years.
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