Two dividend investors can look at the same stock and quote very different yields. One says it yields 2.4%, and the other says 65%. Both can be right. They are using different denominators: one divides the dividend by today's price, and the other divides it by what they paid.
Dividend yield
Dividend yield is the annual dividend per share divided by the current share price. A stock paying $2 a year at $40 a share yields 5%. Because the price changes all day, so does the yield. If the price falls and the dividend stays the same, the yield rises, which can be a warning sign instead of a bargain.
Two versions show up most often:
- Trailing yield adds up the dividends actually paid over the past 12 months and divides by the current price.
- Forward yield annualizes the most recent dividend, for example by multiplying a quarterly payment by four, to estimate the next 12 months. It reflects a recent increase or cut sooner than trailing yield does.
Funds add other measures, such as the distribution rate and the 30-day SEC yield, which can differ a lot for the same fund. We explain those in our guide to the best monthly dividend ETFs, and how to judge whether a yield is high or low in our guide to what a good dividend yield is.
Yield on cost
Yield on cost is the current annual dividend per share divided by your average cost per share. If you bought at $50 and the stock now pays $3 a year, your yield on cost is 6%. If the price has risen to $150, a new buyer gets only a 2% yield from the same stock.
Because your cost is fixed, yield on cost only changes when the dividend changes. It rises when the company raises its payout and falls if the payout is cut. If you bought in several lots or reinvested dividends, use your average cost per share, which your broker reports.
| Dividend yield | Yield on cost | |
|---|---|---|
| Formula | Annual dividend ÷ current price | Annual dividend ÷ your average cost |
| Changes when | The price or the dividend changes | Only when the dividend changes |
| Perspective | What a new buyer earns today | What your original money earns |
| Best used for | Comparing where to put new money | Tracking how your income has grown |
| Comparable across stocks | Yes, for the same date | No, it depends on when you bought |
A real example: Berkshire and Coca-Cola
Berkshire Hathaway built its Coca-Cola position in the late 1980s and early 1990s, ending up with about 400 million shares for roughly $1.3 billion, or about $3.25 a share. In 2026 Coca-Cola pays $0.53 a quarter, or $2.12 a year, after raising its dividend for a 64th straight year.
| Measure | Figure |
|---|---|
| Annual dividend per share | $2.12 |
| Annual dividends on 400 million shares | About $848 million |
| Original cost | About $1.3 billion ($3.25 a share) |
| Yield on cost | About 65% |
| Dividend yield for a new buyer (about $88 a share) | About 2.4% |
| Value of the stake at mid-August 2026 prices | About $35 billion |
| Yield on that current value | About 2.4% |
The 65% is real. It reflects decades of dividend growth and a very low entry price. But look at the last row. Measured against what the stake is worth today, the income is about 2.4%, the same as any new investor would get. The gap between the two numbers is the value that growth added, not extra income available on new money.
How yield on cost grows
Suppose you invest $10,000 at a 3% yield, and both the dividend and the share price grow 7% a year. The current yield never changes, because the price rises as fast as the dividend. Yield on cost, however, keeps climbing:
| Years held | Yearly dividends | Yield on cost | Current yield | Value of holding |
|---|---|---|---|---|
| 0 | $300 | 3.0% | 3.0% | $10,000 |
| 10 | $590 | 5.9% | 3.0% | $19,672 |
| 20 | $1,161 | 11.6% | 3.0% | $38,697 |
| 30 | $2,284 | 22.8% | 3.0% | $76,123 |
Your income grew about 7.6 times, which is real and worth having. But your holding also grew 7.6 times, so each dollar of it still earns 3%. Yield on cost captures the growth in your income. It does not capture that the money behind it is now worth much more.
Compare the two yields yourself
Use a lower number to see the yield rise.
Between 1 and 60 years.
Yield on cost
11.6%
$1,161 a year on the $10,000 you put in.
Dividend yield at today's price
3.0%
Your holding is now worth $38,697.
A new buyer putting $38,697 into the same stock today would earn the 3.0% current yield, not 11.6%. This assumes the dividend and price grow smoothly and ignores taxes. It is an illustration, not a forecast.
To work out the yield on a specific stock, use the Dividend Yield Calculator.
What yield on cost leaves out
- Opportunity cost. The capital tied up in a stock is worth today's market price, not what you paid. What you paid is a sunk cost.
- It looks backward. It tells you about past dividend growth, not future income, and a high figure can hide a business in trouble.
- It is not total return. Like dividend yield, it ignores share price changes.
- It can mislead comparisons. A 10% yield on cost sounds better than a new stock yielding 3%, but if your stock now yields only 2% at today's price, the new one may pay more on the same dollars.
- Inflation erodes it. A 6% yield on cost is worth less in real terms after years of rising prices.
Which one should you use?
- Use dividend yield to compare investments and to decide where new money goes.
- Use yield on cost as a scoreboard to see how much your income has grown from what you own.
- Use yield on current value for retirement planning. Withdrawal rates are set against what your portfolio is worth today, not what you paid. Our guide to how much you need to retire on dividends shows how that works.
How to calculate both yourself
- Find the annual dividend per share. Multiply the latest quarterly dividend by four for a forward figure, or add up the last 12 months for a trailing one.
- Find the current price. Divide the dividend by it to get the dividend yield.
- Find your average cost per share. Your broker reports it. If you reinvested dividends, it includes those purchases. Reinvesting is explained in our guide to what a DRIP is.
- Divide the dividend by your average cost to get your yield on cost.
- Compare the two. Try different numbers with the calculator above or the Dividend Yield Calculator.
Frequently asked questions
What is yield on cost?+
Yield on cost is the current annual dividend per share divided by the price you originally paid per share. If you bought a stock at $50 and it now pays $3 a year, your yield on cost is 6%, even if new buyers only get a 2% yield at today's price.
What is the difference between dividend yield and yield on cost?+
Dividend yield divides the annual dividend by the current share price, so it changes whenever the price or the dividend changes. Yield on cost divides the same dividend by your original purchase price, so it only changes when the dividend changes.
Why is my yield on cost higher than the current yield?+
Usually because the company has raised its dividend since you bought, and the share price has risen along with it. Your cost stays fixed while the dividend grows, so the ratio climbs. It shows how much income has grown relative to your original outlay.
Is a high yield on cost good?+
It shows your dividend income has grown, which is a good sign, but it does not say whether the stock is a good holding today. The capital you have tied up is worth today's market price, not what you paid, and yield on cost ignores share price changes.
Should I use yield on cost to decide whether to sell?+
Most analysts say no. What you paid is a sunk cost, and a new buyer would earn only the current yield. Compare the current yield, dividend growth prospects, and total return of your holding against alternatives instead.
What is the difference between trailing and forward dividend yield?+
Trailing yield uses the dividends actually paid over the past 12 months. Forward yield annualizes the most recent dividend to estimate the next 12 months. After a dividend increase or cut, forward yield reflects the change sooner.
Can yield on cost be more than 100%?+
Yes, in theory, if the annual dividend eventually exceeds what you paid for the shares. It takes a long holding period and a strong dividend growth record. Berkshire Hathaway's stake in Coca-Cola, for example, yields about 65% of its original cost.
This guide is for educational purposes only. It isn't financial, investment, or tax advice, and the figures are illustrative. See our Terms of Use.