Yield on cost

The yield on cost tells you a company's dividend return as a percentage of the price that you paid for the shares.

The dividend yield of a share is fairly easy to understand. It is the current dividend per share divided by the current share price. So a company with a current dividend per share of 4p, and a share price of 100p, has a dividend yield of 4%.

If the company paying the dividend is successful, then its profits and dividends will grow over time. If the dividend grows by 5% per year for ten years, then it will have risen to 6.5p by the end of year ten. As a result, if you bought the shares at 100p ten years ago, then your yield on cost would now be 6.5% (6.5/100) in other words, it tells you the dividend return as a percentage of the price that you paid for the shares.

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