Yield On Cost Calculator
This calculator determines the Yield On Cost (YOC) for an investment. YOC measures the annual income generated by an investment relative to its original purchase price.
Enter the Original Cost of your investment (total amount paid including fees) and the current Current Annual Income it generates (e.g., total dividends or rent received over one year).
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Understanding Yield On Cost
What is Yield On Cost (YOC)?
Yield On Cost (YOC) is a financial metric used to evaluate the return of an investment based on its original purchase price rather than its current market price. It is most commonly applied to dividend-paying stocks or income-generating real estate.
Unlike dividend yield (which uses the current stock price), YOC provides a view of the income return relative to the *actual* amount of money initially invested. This can be particularly useful for long-term investors who have held an asset that has appreciated significantly, as their YOC may be much higher than the current market yield.
Yield On Cost Formula
The formula for Yield On Cost is simple:
Yield On Cost (%) = (Current Annual Income / Original Cost) × 100
How is it Used?
YOC is primarily used by income investors to track the performance of their investments over time. A rising YOC can indicate dividend growth (for stocks) or increasing rental income (for real estate), making the investment increasingly valuable relative to its initial cost.
Note: YOC does NOT account for capital appreciation or depreciation, only the income component.
Yield On Cost Examples
Click on an example to see the calculation:
Example 1: Stock with Dividend Growth
Scenario: You bought a stock for $100 per share. It paid $2 in dividends per year initially. Now, years later, the dividend has grown to $4 per share per year. The current stock price is $150.
Known Values: Original Cost (per share) = $100, Current Annual Income (per share) = $4.
Formula: YOC = (Current Annual Income / Original Cost) × 100
Calculation: YOC = ($4 / $100) × 100 = 0.04 × 100
Result: YOC = 4%.
Note: The current dividend yield would be ($4 / $150) * 100 ≈ 2.67%. Your YOC is higher because you bought it cheaper.
Example 2: Rental Property
Scenario: You bought a rental property for $200,000 (including closing costs). It currently generates $15,000 in net rental income per year (after expenses like property taxes, insurance, maintenance, but before mortgage payment if any).
Known Values: Original Cost = $200,000, Current Annual Income = $15,000.
Formula: YOC = (Current Annual Income / Original Cost) × 100
Calculation: YOC = ($15,000 / $200,000) × 100 = 0.075 × 100
Result: YOC = 7.5%.
Conclusion: The property provides a 7.5% annual income return based on your original investment.
Example 3: Recently Purchased Dividend Stock
Scenario: You just bought a stock for $50 per share. The current annual dividend is $1.50 per share.
Known Values: Original Cost (per share) = $50, Current Annual Income (per share) = $1.50.
Formula: YOC = (Current Annual Income / Original Cost) × 100
Calculation: YOC = ($1.50 / $50) × 100 = 0.03 × 100
Result: YOC = 3%.
Note: When you first buy an income asset, your YOC is equal to the current dividend yield.
Example 4: Stock with No Dividend Change
Scenario: You bought a stock for $80 per share. It paid $1.20 in dividends per year then and still pays $1.20 per year today. The current price is $90.
Known Values: Original Cost (per share) = $80, Current Annual Income (per share) = $1.20.
Formula: YOC = (Current Annual Income / Original Cost) × 100
Calculation: YOC = ($1.20 / $80) × 100 = 0.015 × 100
Result: YOC = 1.5%.
Note: If the income hasn't changed, your YOC remains constant, regardless of market price fluctuations.
Example 5: High Original Cost, Lower Income
Scenario: You bought an investment for $500. It currently pays $10 per year in income.
Known Values: Original Cost = $500, Current Annual Income = $10.
Formula: YOC = (Current Annual Income / Original Cost) × 100
Calculation: YOC = ($10 / $500) × 100 = 0.02 × 100
Result: YOC = 2%.
Conclusion: A lower income relative to the original cost results in a lower YOC.
Example 6: Low Original Cost, Higher Income
Scenario: You bought an investment for $50. It currently pays $5 per year in income.
Known Values: Original Cost = $50, Current Annual Income = $5.
Formula: YOC = (Current Annual Income / Original Cost) × 100
Calculation: YOC = ($5 / $50) × 100 = 0.10 × 100
Result: YOC = 10%.
Conclusion: A higher income relative to the original cost results in a higher YOC. This often happens with long-held dividend growth stocks.
Example 7: Investment with Zero Current Income
Scenario: You bought a stock for $200 per share. The company currently pays no dividend.
Known Values: Original Cost (per share) = $200, Current Annual Income (per share) = $0.
Formula: YOC = (Current Annual Income / Original Cost) × 100
Calculation: YOC = ($0 / $200) × 100
Result: YOC = 0%.
Conclusion: If an income-generating asset currently generates no income, its YOC is 0%, regardless of its original cost or current market value.
Example 8: Small Investment, Small Income
Scenario: You invested $50 and it currently provides $2 per year in income.
Known Values: Original Cost = $50, Current Annual Income = $2.
Formula: YOC = (Current Annual Income / Original Cost) × 100
Calculation: YOC = ($2 / $50) × 100 = 0.04 × 100
Result: YOC = 4%.
Conclusion: The size of the investment doesn't affect the *percentage* YOC, only the absolute income amount.
Example 9: Calculating Total Original Cost
Scenario: You bought 100 shares of a stock at $75 per share, paying $10 in commission. Your total original cost is (100 * $75) + $10 = $7510. The stock now pays $3.50 per share per year in dividends, totaling 100 * $3.50 = $350 annual income.
Known Values: Original Cost (Total) = $7510, Current Annual Income (Total) = $350.
Formula: YOC = (Current Annual Income / Original Cost) × 100
Calculation: YOC = ($350 / $7510) × 100 ≈ 0.0466 × 100
Result: YOC ≈ 4.66%.
Conclusion: It's crucial to use the *total* original cost and *total* annual income for the calculation.
Example 10: Using YOC to Compare Investments
Scenario: Investment A: Bought for $1000, pays $60/year income. Investment B: Bought for $500, pays $30/year income. Investment C: Bought for $2000, pays $100/year income.
Calculate YOC for each:
A: ($60 / $1000) * 100 = 6%
B: ($30 / $500) * 100 = 6%
C: ($100 / $2000) * 100 = 5%
Conclusion: Investments A and B have the same YOC (6%), indicating they are equally efficient in terms of income generation relative to the original cost. Investment C is slightly less efficient in this regard.
Frequently Asked Questions about Yield On Cost
1. What is the basic definition of Yield On Cost?
Yield On Cost (YOC) is the annual income generated by an investment divided by the original price paid for that investment, expressed as a percentage.
2. How is YOC different from Dividend Yield?
Dividend Yield uses the *current market price* of a stock in its calculation (Annual Dividend / Current Stock Price). YOC uses the *original purchase price* instead (Annual Dividend / Original Purchase Price). YOC stays constant if the dividend doesn't change, whereas Dividend Yield fluctuates with the stock price.
3. Why is YOC useful for long-term investors?
For investors who hold assets for many years, especially those with growing income (like dividend growth stocks), the current market price may have increased significantly. YOC shows the return relative to their actual capital outlay, often appearing much higher than the current market yield and reflecting the success of their initial investment decision.
4. Does YOC include capital gains?
No. Yield On Cost focuses purely on the income component (dividends, interest, rent) relative to the original cost. It does not account for any increase or decrease in the market value of the investment itself.
5. Can YOC be used for investments other than stocks?
Yes, YOC can be applied to any investment that generates regular income based on an initial purchase price, such as rental real estate (using net rental income) or even bonds (using coupon payments relative to purchase price, though less common nomenclature).
6. What does a high YOC mean?
A high YOC typically means one or both of the following: 1) The investor purchased the asset at a very low price relative to its current income, or 2) The asset's income generation (dividends, rent) has grown significantly since the original purchase date.
7. What does a YOC of 0% mean?
A YOC of 0% means the investment is currently generating no annual income, regardless of what you paid for it.
8. Should I use total cost and total income, or per-share cost and per-share income?
You can use either, as long as you are consistent. (Total Annual Income / Total Original Cost) will give you the same YOC percentage as (Annual Income Per Share / Original Cost Per Share).
9. Is a high YOC always better?
Not necessarily on its own. YOC only tells you about the income return relative to your *original* cost. It doesn't tell you about the investment's total return (which includes capital appreciation), its risk level, or its prospects for future income growth.
10. What should I include in "Original Cost"?
Original cost should include the purchase price of the asset plus any transaction costs like brokerage fees, commissions, or closing costs (for real estate).
11. What should I include in "Current Annual Income"?
Current Annual Income should be the total income the investment is expected to generate over the next 12 months. For stocks, this is the total dividends per share multiplied by the number of shares. For real estate, it's typically the gross rental income minus operating expenses (like property taxes, insurance, maintenance, but generally *excluding* mortgage principal and interest payments).
