Yield on Cost
Does size really matter?
Introduction
You’ve probably heard it before, someone says “I don’t buy stocks with yields below 1%”. It may even be something you tell yourself, but I’m here to tell you size doesn’t matter.
If you’ve ever heard this or say this to yourself, I want to show you the power of yield on cost combined with share price appreciation.
Now before we get into this I understand investors have different goals and circumstances, some look solely for income, some look for growth and some look for both.
Definition
So what is yield on cost?
Yield on cost is a measure of dividend yield calculated by dividing a stock’s current dividend by the price you initially paid for that stock.
Example
Let’s say you buy a share of Company X in 2013 for $100 and the dividend yield at that time was 3%, your yield would be 3% which means you would be receiving $3 that year in dividends for Company X.
Now let’s fast forward to 2024 and Company X is now worth $500 and the dividend yield is still 3% which means you would be receiving $15 that year in dividends for Company X.
What is the dividend yield in 2024 for Company X? It’s 3%.
What is your yield on cost in 2024 for Company X? It’s the $15/$100 which is 15%.
Therefore in 2024 you would have 400% in unrealised share price appreciation as well as a yield on cost of 15%.
Real Life Example
Now let’s use real data based on a wide range of stocks from different industries and yields.
We will run the same example above for the below Companies:
AAPL - Apple
Dividend Yield = 0.51%
Share Price 2013 = $18
Dividend 2023 = $0.96
Yield on cost = 5.3%
Share Price growth = 850%
MA - MasterCard
Dividend Yield = 0.57%
Share Price 2013 = $58
Dividend 2023 = $2.28
Yield on cost = 4%
Share Price growth = 590%
JNJ - Johnson & Johnson
Dividend Yield = 3.01%
Share Price 2013 = $91
Dividend 2023 = $4.76
Yield on cost = 5.2%
Share Price growth = 74%
O - Realty Income
Dividend Yield = 5.57%
Share Price 2013 = $38
Dividend 2023 = $3.12
Yield on cost = 8.2%
Share Price growth = 45%
MO - Altria
Dividend Yield = 9.40%
Share Price 2013 = $35
Dividend 2023 = $3.92
Yield on cost = 11.2%
Share Price growth = 15.6%
Conclusion
The point here by drawing on some examples in the current market is to show that just because Companies have high yields such as MO with a yield of 9.40% or O with a yield of 5.57% it doesn’t make them the best stocks to invest in.
Share price growth is as important as is the yield on cost.
Let me know your thoughts!
Note
I am not a financial advisor or licensed professional. Nothing I say or produce anywhere, should be considered as advice. All content is for educational purposes only. I am not responsible for any financial losses or gains. Invest and trade at your own risk.