Chapter 2 of 10
Yield: current vs. on cost
Yield turns a payout into a percentage so you can compare stocks — and there are two kinds worth knowing.
Current yield is the annual dividend divided by today's price — what a new buyer earns now. Yield on cost divides the same dividend by what you originally paid, so as a company raises its dividend over the years, your yield on cost climbs even though the current yield stays roughly flat.
A very high current yield can be a warning, not a bargain — it often means the price fell because the market doubts the payout.
Key terms
- Current yield
- A stock's annual dividend divided by today's share price — what a new buyer would earn right now.
- Yield on cost
- Your annual dividends from a holding divided by what you originally paid for it — so a growing payout keeps lifting your yield on cost even as the share price climbs.
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