Dividend yield vs yield on cost
Why the same dividend can mean a rising effective yield for long-term holders.
“Dividend yield” and “yield on cost” both divide a dividend by a share price — the entire difference is which price. Dividend yield uses today’s price. Yield on cost uses the price you actually paid, however long ago that was. For a brand-new buyer the two are identical; for someone who has held for years, they can be wildly different numbers describing the same holding.
Two different yields, same investment
₹5,00,000 buys 1,111.11 shares at ₹450, with a ₹12/share dividend growing 8% a year. Using the real computeDividendIncome formula: the dividend yield in year 1 is 2.67%(₹12 ÷ ₹450). By year 10, the dividend per share has grown to ₹23.99 — measured against the original ₹450 you paid, that’s a yield on cost of 5.33% — exactly double the starting yield, purely because the dividend grew while your cost basis stayed fixed.
Estimate the annual dividend income you can expect from your holdings.
Why this only works for existing holders
A 5.33% yield on cost sounds like a great current return — but it only exists relative to a price that no longer applies to anyone buying the stock today. A new investor buying at year 10 pays whatever the share is actually worth by then, and their own dividend yield is calculated against thatprice, not your original ₹450. Yield on cost is a personal, retrospective number that belongs entirely to the holding period behind it — it isn’t transferable, and it isn’t something you can shop for when deciding what to buy next.
Don’t compare your own yield on cost against another stock’s current dividend yield when deciding whether to switch — that’s comparing a number inflated by years of dividend growth against a fresh snapshot. The fair comparison for a new decision is always today’s dividend yield on both sides.
What it doesn’t tell you
A rising yield on cost feels like validation that a holding was a good call, and often it is — but the number only tracks whether the per-share dividend kept growing, not whether the growth is coming from a genuinely healthy, sustainably growing business. A company can keep raising its dividend for a while even as its underlying fundamentals weaken, which pushes yield on cost up right up until the dividend itself gets cut. That distinction — between a dividend that’s growing because the business supports it and one that’s growing on borrowed time — is worth its own dedicated look.
All figures are indicative and for educational purposes only — not financial advice.
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