Definition
Dividend Yield and dividend growth of a stock is an important factor for income investors. But if company A raises its dividend constantly faster than company B, company As future dividend yield might be much higher than Company Bs even if their yields are the same now and their stock prices do not change.
Yield on Cost assumes that you buy and the stock today, and hold it for 5 years. If the company raises it dividends at the same rate as it did over the past 5 years, the dividends investors receive annually in 5 years relative to the stock price today.
Therefore, Yield-on-Cost is calculated as
Yield-on-Cost = Dividend Yield * (1+Dividend Growth Rate)^5
Explanation
Of course the risk here is that the company may not raise its dividends as it did before. The key is to select the companies that can consistently raise its dividends. Usually companies with long history of raising dividends tend to do so.
Related Terms
Dividend Yield,
Dividend Growth Rate* All numbers are in millions except for per share dataUnited Rentals Inc Annual Data
| Dec03 | Dec04 | Dec05 | Dec06 | Dec07 | Dec08 | Dec09 | Dec10 | Dec11 | Dec12 |
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United Rentals Inc Quarterly Data
| Dec10 | Mar11 | Jun11 | Sep11 | Dec11 | Mar12 | Jun12 | Sep12 | Dec12 | Mar13 |
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| yield_on_cost |
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