Yield on cost vs. current yield. Two numbers. Very different jobs.
They both call themselves "yield." They answer completely different questions — and confusing them quietly leads to bad decisions.
Two investors own the same stock. One says it yields 2.7%. The other says it yields 6.8%. Neither is wrong. They're just quoting different numbers — current yield and yield on cost — and the difference between them explains a lot about how dividend investing actually feels over time.
Both numbers are a dividend divided by a price. The entire distinction is which price sits in the denominator. Current yield uses today's price. Yield on cost uses the price you personally paid. That one swap changes what the number is for.
Get this straight and two things happen: you stop comparing apples to oranges when you read about dividend stocks, and you avoid a genuinely common mistake that keeps people holding investments they should have let go.
Current yield — what the stock pays today
A stock paying $2.70 a year at a $100 share price has a current yield of 2.7%. It updates the moment the price moves.
Current yield is the number you see everywhere — on your brokerage screen, in stock screeners, in every article. It answers a "right now" question: if I buy this stock today, at this price, what cash return does the dividend represent?
Because it uses today's price, current yield is the honest tool for comparison. When you're deciding between two dividend stocks, or weighing a stock against a bond, current yield puts them on the same footing — it's measured against what a new dollar would actually cost you. Whenever you're making a decision in the present, this is the number that belongs in the conversation.
Yield on cost — what the stock pays you
Bought at $40 and the dividend is now $2.70? Your yield on cost is 6.8% — no matter where the share price sits today.
Yield on cost is personal. Two people who own the identical stock have different yields on cost, because they paid different prices. It's not a property of the stock — it's a property of your position in it.
Here's why it's worth tracking. Your purchase price is frozen the day you buy. The dividend, on a good company, keeps rising. So yield on cost only moves in one direction: up. A stock you bought at a 3% yield can be paying you 6%, 8%, even 10% on your original investment a decade or two later — while a brand-new buyer, paying today's higher price, sees a much lower current yield. Yield on cost is the scoreboard for the dividend snowball.
Watch the two numbers split apart
One stock, bought at $40 with a $1.20 dividend. Dividend grows ~7% a year, price grows ~8%. Same stock, two yields.
On day one they're identical — 3.0% and 3.0%. You paid $40, the dividend is $1.20, and "today's price" and "your price" are the same number.
Then they drift. Your yield on cost climbs steadily, because the dividend rises while your $40 cost basis never moves. Current yield drifts slightly down , because the share price is rising a touch faster than the dividend. By year 12 you're earning 6.8% on your original money — but a new buyer at the now-$100 price collects just 2.7%. Same dividend, same stock. Different denominators.
The mistake people make with yield on cost
Yield on cost is a great motivator. It is a terrible decision-maker. Here's the difference.
Picture an investor whose yield on cost on a stock is 12%. The business has quietly stalled — the dividend hasn't grown in years, the share price is sliding — but they refuse to sell. "Why would I? I'm earning 12% on this thing."
That reasoning is the trap. Yield on cost is measured against money they spent years ago. That money is already spent; it isn't coming back as a function of this decision. The only number that matters when deciding whether to keep a stock is what that capital could do today — and that's current yield, plus the company's prospects from here.
If the stalled stock has a 4% current yield and a healthier company offers 4% with real dividend growth, the choice is the second one. Your glorious 12% yield on cost has zero bearing on it. It's a scoreboard, not a steering wheel.
The one-line version: never let a high yield on cost talk you into holding a stock you wouldn't buy again today at its current yield.
When each number actually does a job
Use current yield to decide
- Comparing two dividend stocks before you buy
- Weighing a stock against bonds or cash
- Deciding whether to keep, add to, or sell a holding
- Spotting a yield trap — a yield that looks too good
Use yield on cost to measure
- Tracking how far a long-term holding has come
- Seeing the dividend snowball working over time
- Staying patient through a quiet accumulation decade
- Not for buy or sell decisions — that's current yield's job
See both yields, on every holding — free
Connect your brokerage through Plaid and DivTrkr shows current yield and yield on cost side by side across your whole portfolio. No cost-basis spreadsheet required.
Common questions
The questions that come up once the two numbers click.
Stop calculating yields by hand
Current yield, yield on cost, projected annual income — DivTrkr computes all of it across every position the moment you connect your brokerage. The right number, ready when you need it. Free, no credit card.
A note on the numbers: The 12-year example uses illustrative assumptions — a $40 purchase price, a $1.20 starting dividend, roughly 7% annual dividend growth, and roughly 8% price growth — to show how the two yields diverge. Real results vary by stock and are not guaranteed. Nothing here is personalized financial advice — DivTrkr is a tracking tool, not a registered investment advisor. Consult a qualified professional before making investment decisions.
About the author: Michael Velasco writes about dividend investing and the FIRE movement for DivTrkr. He is not a registered financial advisor; his work focuses on translating dividend math into plain language for self-directed investors.