Yield on Cost (YOC) can be defined as a ratio of dividend yield determined by dividing a security's present dividend by the cost first paid for that security.
For instance, if an investor bought a security 5 years back for Rs. 1400, and its present day dividend is Rs. 150 per equity share, then the yield on cost for that security is going to be be 7.5%.
Yield on cost ought not be mistaken for the expression "current dividend yield."
The latter alludes to the dividend divided by the present day price of the security, instead of the cost at which it was originally bought.
Yield on cost reflects the dividend yield in relation with the original cost paid for a security.
Thus, securities that have increased their dividends over the period of time can exhibit exceptionally high yield on costs, particularly if the investor has held on to the stock for a long time.
In fact, it is not abnormal for long term investors to own securities whose present day dividends are greater than the original cost paid for the stock, resulting in a yield on cost of 100% or more prominent.
Because yield on cost is determined based on the original cost paid for a stock, investors must ensure they monitor the holding costs they have incurred for that stock over the period of time, and also, any extra stock they have purchased.