Yield on cost is telling you a comforting lie

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If you've held a dividend stock for a few years, you've probably seen a number that makes you feel great: a yield on cost of 8, 10, sometimes 15 percent. It feels like proof you made a brilliant buy. It mostly isn't.

What yield on cost actually measures

Yield on cost is the current annual dividend divided by the price you paid, years ago. Buy a stock at $50 with a $2 dividend and you start at a 4 percent yield on cost. If the company raises the dividend to $4 over the next decade, your yield on cost is now 8 percent, even though the stock might trade at $200 and yield 2 percent to anyone buying today.

Notice what's doing the work there. Your cost basis is frozen in the past. Every dividend raise pushes the number up, and it can basically never go down (short of a cut). A metric that only ever rises is not measuring the quality of the investment. It's measuring how long ago you bought.

Why it quietly leads you astray

The danger isn't the number itself, it's the decision it nudges you toward. A high yield on cost makes you feel like you're earning a fat return on that position, so you hold it. But the money tied up in the stock is worth its current market value, not what you paid. The real question is always: if I had this cash today, would I put it in this stock at today's price and today's yield?

That's the current yield, and it's often far lower than the yield on cost you've been admiring. Two investors holding the exact same shares of the exact same company have the exact same economic position, even if one bought at $50 and shows 8 percent yield on cost while the other bought last week and shows 2 percent. The stock doesn't know or care what you paid.

When yield on cost is genuinely useful

It's not useless. Yield on cost is a fair way to look backward and judge a company's dividend growth: a rising yield on cost is the fingerprint of a business that keeps raising its payout, and that track record matters when you're forecasting future income. Just don't use a backward-looking number to make a forward-looking hold-or-sell decision.

What Cresori does

Cresori shows both, clearly labeled, so you're never comparing the wrong one. You see your current yield (what the position earns at today's price) next to your yield on cost (your dividend-growth track record on that holding), plus the projected income it actually feeds into your forward dividend forecast, so the number driving your decisions is the one that reflects today's price, not a nostalgic entry point.