Yield on Cost: The Dividend Metric That Matters More Than Current Yield

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While current yield — annual dividend divided by today's price — is the most commonly cited dividend metric, investors who reinvest dividends should focus instead on yield on cost, which measures annual dividend income against the original amount invested. An open-source JavaScript library called dividend-math includes a DRIP calculator that simulates dividend reinvestment year by year, accounting for share accumulation, price growth, and dividend growth. Over a 15–20 year horizon, the combination of rising dividends and reinvested shares can push yield on cost to two or three times the starting yield, even if current yield appears flat. This happens because the denominator in yield on cost is fixed at historical cost, while both dividend income and share count continue to grow. The library is MIT-licensed, available on npm, and powers several pages on dividendpayoutcalculator.com, with all formulas covered by unit tests to avoid calculation errors.

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