You bought Royal Bank a decade ago at $60 a share. Today it trades near $140 and pays a quarterly dividend that works out to roughly $5.40 a year. On your original cost, that is a yield approaching 9 %. On today's price it is closer to 3.9 %. Both numbers are real — but they answer completely different questions, and confusing them is one of the most common traps in dividend investing.
| Basis | Price per Share | Annual Dividend | Yield |
|---|---|---|---|
| Original cost (10 years ago) | $60 | $5.40 | 9 % (yield on cost) |
| Today's price | $140 | $5.40 | 3.86 % (current yield) |
Yield on cost (YoC) is the annual dividend income a position generates divided by your original cost basis — not the current market price. The formula is simple:
Yield on Cost = Annual Dividend per Share ÷ Cost per Share × 100
If you paid $60 for a stock that now pays $5.40 annually, your YoC is 9 %. If you bought that same stock today at $140, your current yield would be 3.86 %. Neither number is wrong. They measure different things.
Current yield tells you what a new dollar invested would earn right now. Yield on cost tells you what your original dollar is earning today — a reflection of time, price appreciation, and dividend growth all rolled into one figure.
Two forces push yield on cost higher as the years pass:
This is why long-term holders of dividend-growth stocks often cite YoC figures that look extraordinary — double-digit yields on cost are not uncommon for investors who bought quality Canadian financials or utilities in the early 2000s and held through every downturn.
| Metric | What It Measures | Best Used For |
|---|---|---|
| Current Yield | Annual dividend ÷ today's price | Comparing new investment opportunities; evaluating entry points |
| Yield on Cost | Annual dividend ÷ your purchase price | Tracking the income growth of an existing position over time |
Current yield is the number that matters when you are deciding where to deploy fresh capital. Yield on cost is a personal scorecard — it reflects your own history with a holding, not the opportunity available to anyone buying today.
Here is where yield on cost can actively work against you. Suppose you hold a utility stock bought at $30 that now trades at $28 — price has gone nowhere in seven years — but the company has slowly raised its dividend and your YoC is now 7 %. That number feels good. You tell yourself you are being paid well to wait.
But ask the harder question: if you sold this position today and redeployed the $28 into a quality dividend-growth ETF yielding 4 % with a strong total-return track record, would you be better off in ten years? Probably yes. Your 7 % YoC is real, but the opportunity cost of staying in a price-stagnant position is also real — and YoC completely obscures it.
This is sometimes called the sunk-cost yield trap. Because your cost basis is low, the income looks attractive relative to what you paid. But the market does not care what you paid. The relevant question is always: given today's price, does this position represent the best use of that capital?
A high YoC can be a sign of a great long-term decision — or a consolation prize for a stock that has underperformed on a total-return basis. You need to check both. A good total-return benchmark comparison will tell you whether your dividend income offset the missed capital gains of an alternative.
Yield on cost is not a useless vanity metric. Used correctly, it provides real insight:
Canadian investors need to track their adjusted cost base (ACB) carefully — especially when dividends are reinvested through a DRIP. Each reinvested dividend adds to your total cost base, which in turn affects your YoC calculation and, crucially, your capital gain or loss when you sell. If you use DRIP across a non-registered account, your ACB changes with every reinvestment. Getting this wrong can lead to overpaying capital gains tax. The CRA expects you to track each acquisition separately.
WealthWise tracks your ACB automatically when you enter or import transactions, so your YoC figure always reflects your true blended cost — not just the price of your first purchase.
In your WealthWise portfolio, every position that pays a dividend shows both its current yield (based on today's market price) and its yield on cost (based on your actual transaction history). The platform pulls your cost basis from your imported or synced transactions — including DRIP reinvestments — and divides the current annualized dividend per share by that number.
This means your YoC updates automatically when a company announces a dividend change, and it correctly reflects blended cost across multiple purchase dates. If you have been dollar-cost averaging into a position over several years, WealthWise weights your cost basis accordingly.
You can also see how your YoC fits into your overall dividend tracking dashboard — including projected annual income, monthly income breakdown, and your progress toward a passive income target.
| Investor | Purchase Date | Purchase Price | Relevant Yield |
|---|---|---|---|
| Investor A | 2015 | $35 per share | Yield on cost ≈ 10.5 % |
| Investor B | Last month | $60 per share | Current yield ≈ 6.1 % |
Consider two investors who both hold Enbridge (ENB):
Investor A's high YoC reflects a decade of dividend growth and a low purchase price. It is a genuine reward for her patience. But if she is using that 10.5 % to feel comfortable ignoring Enbridge's total return versus alternatives, she may be making a mistake. Investor B, evaluating ENB fresh, correctly focuses on the 6.1 % current yield and the company's dividend-growth track record — the only numbers that are relevant to a new capital decision.
Yield on cost is a personal metric that celebrates the compounding power of dividend growth over time. It belongs in your portfolio dashboard as a reward for long-term thinking — not as a reason to hold onto a position that has stopped earning its place in your portfolio on a total-return basis.
Always pair YoC with current yield, total return, and a clear-eyed view of whether the underlying business still justifies the allocation. WealthWise surfaces all three, so you have everything you need to make that call without spreadsheet gymnastics.
Not necessarily. A high YoC can reflect years of smart dividend-growth investing — or it can mask a stock that has lagged on total return. Always compare YoC with the current yield and the position's total return versus a relevant benchmark before concluding that a high YoC justifies staying the course.
Yes. Your cost basis stays fixed, so any dividend increase directly raises your yield on cost. This is one of the key reasons long-term holders of dividend-growth companies see their YoC climb significantly over time.
When you reinvest dividends, new shares are added to your position at the current price, which changes your average cost per share. This adjusts your YoC. WealthWise tracks each reinvestment transaction so your displayed YoC always reflects your true blended cost basis.
Use current yield when evaluating new investment opportunities or comparing stocks you might buy today. YoC is only meaningful for positions you already hold — it reflects your personal purchase history, not the opportunity available to someone else entering today.
It can. For dividend-focused ETFs held for many years in a DRIP, watching your YoC climb is a useful indicator of income growth. However, since ETF distributions can vary year to year depending on holdings and portfolio turnover, YoC on ETFs is somewhat less stable than on individual dividend-growth stocks.
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