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What is the Yield-On-Cost? 

Yield-On-Cost is essentially the same as the Dividend Yield, calculated over longer time frames. 

A Yield-On-Cost can be defined as the annualized cash dividend received from a security, divided by its cost basis.  At the time of acquisition, this is the same as the dividend yield. 

If the number of shares of the security is kept constant over time, and if the cash dividend paid to the investor goes up, the yield-on-cost will go up. 

If 28 shares of Dover Corporation are purchased for $55.13 each, the cost will be $1543.64, and with a $7.95 commission, the total cost is $1551.59, or a cost basis of $55.41 per share.  In mid-2012, the annualized cash dividend was $1.26 per share.  The current yield and the yield-on-cost would be

 ($1.26/$55.41)*100=2.27%, or

Dividend/Cost*100 

If more shares are bought over time, either through reinvestment or through direct purchases, simply add up all of the shares owned, and determine an average cost basis for each share.  Then divide the current annual dividend by this amount and multiply by 100.

It should be clear that if the dividend payments go up, the yield-on-cost goes up.  This is why the measure is somewhat important to dividend growth investors.  However, the rate at which the yield-on-cost goes up only demonstrates that dividend growth investors are getting rich very, very slowly.  But given enough time, they also get very rich.