What is yield on cost?

Yield on cost divides the dividend a holding pays today by what you originally paid for it. If you bought a share at 20 and it now pays 1.20 a year, your yield on cost is 6%, no matter what the share trades at now. It describes your position, not the stock.

What is current yield?

Current yield divides the dividend paid over the last twelve months by the share price today. It is the same for everybody who holds the stock, because it does not reference what anyone paid. It describes the stock, not your position.

Why is my yield on cost so much higher than the current yield?

Because the share price rose after you bought, the dividend rose, or both. Yield on cost has a fixed denominator — your purchase price — while current yield's denominator moves with the market. A long-held position in a company that has raised its dividend will show the two drifting apart, and the gap grows with time held rather than with anything happening now.

Which yield should I use when comparing two stocks?

Current yield, because it is the only one of the two that is comparable between holders. Yield on cost depends on your entry price, so two people holding the same stock have different yield-on-cost figures and neither can be compared with a third stock.

Yield on cost vs current yield, explained

A holding you bought ten years ago yields 7.5%. The same holding, bought this morning, yields 3%. Both figures describe the identical share paying the identical dividend on the identical day.

Dividend yield is a fraction, and the two versions differ only in the denominator. That single swap changes what the number is about — one describes your position, the other describes the stock — and the two get used interchangeably in conversations where only one of them makes sense.

The two formulas

current yield   =  annual dividend ÷ price today
yield on cost   =  annual dividend ÷ price you paid

Same numerator. Everyone holding the stock gets the same current yield, because nothing in it references any particular holder. Yield on cost is personal: your entry price is in it, so your figure and mine differ even though we own the same thing.

A holding, ten years on

You bought at €20. It paid €0.80 a year at the time — a 4% yield on the day you bought, and both formulas agreed, because on day one the price you paid is the price today.

A decade later the company has raised the dividend to €1.50 and the share trades at €50.

current yield   1.50 ÷ 50  =  3.0%
yield on cost   1.50 ÷ 20  =  7.5%

Nothing has been calculated incorrectly. The dividend nearly doubled while the price more than doubled, so measured against today’s price the yield fell, and measured against the €20 you actually handed over it rose.

What each one is good for

	Current yield	Yield on cost
Denominator	Price today	Your purchase price
Same for every holder	Yes	No
Changes when the price moves	Yes	No
Changes when the dividend is raised	Yes	Yes
Comparable between two stocks	Yes	No
Describes	The stock	Your position

The row that matters most is the comparability one. If you are lining two holdings up against each other, yield on cost cannot do it — the figures rest on two unrelated purchase prices from two unrelated dates. A 9% yield on cost from a 2015 entry and a 3% yield on cost from a 2025 entry tell you which position is older, not which pays more.

The part people get wrong

Yield on cost is frequently read as a measure of how hard your capital is currently working. It is not, and the reason is the denominator: the €20 is a historical fact, not the amount of capital you have tied up in the position today.

Your capital in that holding is €50 a share. That is what you would realise by selling, so that is the sum currently committed to it. Against that number the position yields 3%. The 7.5% figure measures today’s dividend against a price nobody can pay any more.

Both statements are true at once: the position has produced a rising income stream on the money you originally committed, and the capital sitting in it today yields 3%. Yield on cost describes the history of the position. Current yield describes its present.

Where yield on cost earns its keep

It is the natural way to describe dividend growth over a long hold. Saying “this position now pays me 7.5% a year on what I put in” states something real and specific about a decade of raises — and current yield cannot express it, because the price moved in step and hid the growth.

The distinction is between describing a position you hold and evaluating one you might. Yield on cost is a record of what has happened. Current yield is a fact about the market today, and it is the only one of the two that a second person can use.

Two traps in the numerator

Both formulas share a top half, which means both inherit its problems.

Trailing versus forward. Most quoted yields divide the last twelve months of payments by the price. If the dividend was cut eight months ago, two of the four payments in that window are the old, larger ones, and the yield on your screen describes a payment level that no longer exists.
Special dividends. A one-off payment lands in the trailing twelve months and inflates the yield for a year, then vanishes. A holding showing a yield far above its own history is worth checking for a special before treating the figure as a run rate.

Currency, if you hold outside the euro

For a euro investor holding a US or UK stock there is a third number, because the dividend is declared in dollars or sterling and arrives in euros. The yield your broker shows is calculated in the stock’s own currency; what reaches your account depends on the exchange rate on the payment date.

Over a decade this is not a rounding difference. A dividend raised 6% a year in dollars, received into euros across a period when the dollar weakened 20%, produced a materially different income stream than the headline growth rate implies — and yield on cost calculated in euros, from the euros that actually arrived, is the only version that shows it.

HaboFi tracks both yields per holding and converts every dividend at the rate on its payment date, so your yield on cost reflects the money that reached your account rather than the declared amount.

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This article is general information about how these calculations work. It is not financial, investment or tax advice, and nothing in it is a recommendation to buy or sell any security. See our terms.