Yield on Cost, also known as Cost Yield

"Yield on Cost" 

Simple Definition

Yield on Cost (YoC), also known as Cost Yield, is a measure of the dividend income you are receiving relative to the original price you paid for a stock. It's a personalized metric that shows you the effective return your initial investment is generating based on the dividends it pays.

It's different from the standard Dividend Yield you see on financial websites, which is based on the stock's current market price.

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The Formula

The calculation is very straightforward:

Yield on Cost = (Annual Dividend Per Share / Your Original Cost Per Share) × 100

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Key Distinction: Yield on Cost vs. Current Dividend Yield

This is the most important concept to grasp:

• Yield on Cost (YoC): Backward-looking & Personal. It tells you the return on your specific investment.

• Current Dividend Yield: Forward-looking & General. It tells a new investor today what their potential return would be if they bought at the current price.

  • Current Dividend Yield = (Annual Dividend Per Share / Current Market Price Per Share) × 100

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Examples to Illustrate

Let's walk through a few scenarios.

Example 1: The Basic Purchase

1. You buy shares of "Company A" at $100 per share.

2. Company A pays an annual dividend of $4 per share.

3. At the time of your purchase, your Yield on Cost is identical to the Current Dividend Yield: ($4 / $100) x 100 = 4%.

This is your starting point.

Example 2: The Power of a Rising Dividend (The "YoC Magic")

This is where Yield on Cost becomes impressive. Let's fast-forward five years.

• Your Original Cost: Still $100 per share.

• Company A's Performance: The company has done well and consistently raises its dividend. The annual dividend is now $6 per share.

• The Stock Price: It has also risen and now trades at $150 per share.

Let's calculate both yields:

• Your Yield on Cost:

  • Annual Dividend = $6

  • Original Cost = $100

  • YoC = ($6 / $100) x 100 = 6%

• Current Dividend Yield (for a new investor):

  • Annual Dividend = $6

  • Current Price = $150

  • Current Yield = ($6 / $150) x 100 = 4%

What this means for you: While a new investor only gets a 4% yield, you are effectively earning a 6% return on your original $100 investment. Your yield has grown without you having to invest more money.

Example 3: A Real-World "Dividend Aristocrat" - Johnson & Johnson (JNJ)

Imagine you bought Johnson & Johnson stock 20 years ago.

• Your Purchase (circa 2004): You bought at $40 per share.

• Dividend Then: The annual dividend was, for example, $0.80 per share.

  • *Your initial YoC was: ($0.80 / $40) x 100 = 2%.*

• Today's Reality (2024): JNJ has raised its dividend every year for decades. The annual dividend is now $4.96 per share.

• Current Stock Price: It's around $155 per share.

Let's calculate:

• Your Yield on Cost Today:

  • YoC = ($4.96 / $40) x 100 = 12.4%

• Current Dividend Yield Today:

  • Current Yield = ($4.96 / $155) x 100 = 3.2%

As a long-term holder, you are enjoying a massive 12.4% effective yield on your initial capital, while a new buyer today would only get 3.2%. This demonstrates the incredible power of dividend growth investing.

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Why is Yield on Cost Important?

1. Tracks Investment Success: It shows you the tangible income return your initial decision is generating. A rising YoC is a clear sign that your investment is performing well from an income perspective.

2. Highlights the Power of Dividend Growth: It quantifies the benefit of investing in companies that consistently increase their dividends.

3. Provides Psychological Comfort: During market downturns, if the stock price falls, your Yield on Cost remains unchanged or may even continue to grow if the dividend is raised. This can help long-term investors stay the course.

4. Helps with Income Planning: For retirees, YoC is a practical number. They can look at their portfolio and see, "This chunk of money I invested is now yielding me 8% in annual income," which is useful for budgeting.

Limitations of Yield on Cost

It's a powerful tool, but it's not perfect.

• Not a Measure of Total Return: YoC ignores capital appreciation (or depreciation). A stock could have a high YoC but a fallen price, resulting in a net loss.

• Can Create Complacency: A very high YoC might make an investor reluctant to sell a stock, even if the company's future prospects have dimmed. It's a backward-looking metric and shouldn't be the sole reason for holding an investment.

• Doesn't Reflect Opportunity Cost: That 12.4% YoC on JNJ is impressive, but it doesn't tell you if that money could be earning a better total return elsewhere.

Summary

Feature	Yield on Cost (YoC)	Current Dividend Yield
Purpose	Measures your personal dividend return	Measures the current market's dividend return
Formula	Annual Dividend / Your Cost	Annual Dividend / Current Price
Perspective	Backward-looking, Personal	Forward-looking, General
Key Driver	Dividend Growth over time	The stock's current market price

In short, Yield on Cost is the reward for being a patient, long-term investor in high-quality companies that grow their dividends. It's a metric of pride and a testament to the power of compounding.

Feature ...  Yield on Cost (YoC) ...  Current Dividend Yield 

Purpose ...  Measures your personal dividend return ... Measures the current market's dividend return 

Formula ...  Annual Dividend / Your Cost ,,, Annual Dividend / Current Price 

Perspective ...  Backward-looking, Personal ... Forward-looking, General 

Key Driver ...  Dividend Growth over time ...  The stock's current market price

What Investors Look For in Any Balance Sheet (A General Framework). 5 critical questions.

 

What Investors Look For in Any Balance Sheet (A General Framework)

From an investor's point of view, the balance sheet is searched for answers to five critical questions:

1. Liquidity: Can it pay its bills in the short term?

• What to look for: Current Ratio (Current Assets / Current Liabilities). A ratio above 1.5 is generally safe, and above 2.0 is comfortable. 

• Red Flag: A ratio below 1.0, or a rapidly declining cash balance without a clear, profitable reason.

2. Solvency & Leverage: Can it survive in the long term?

• What to look for: Debt-to-Equity Ratio (Total Debt / Total Equity) and Interest Cover Ratio (EBIT / Interest Expense).

• What it means: A high Debt/Equity ratio means higher risk. A strong Interest Cover ratio  means the company can easily service its debt from operations.

• Red Flag: Rising debt with falling profits, or an Interest Cover ratio below 3.0.

3. Efficiency: How well does it use its assets?

• What to look for: Trends in Receivables and Inventory. Are they growing much faster than revenue? This could indicate problems collecting money or selling products.

• What it means: A "clean" balance sheet without bloated, non-productive assets.

• Red Flag: Skyrocketing receivables, indicating customers are taking longer to pay, or obsolete inventory piling up.

4. Capital Allocation: Where is the money being invested?

• What to look for: The composition of Assets. Is the company investing in future growth (e.g., R&D, Capex) or just piling up cash?

• What it means: The balance sheet reveals management's strategy.

• Red Flag: Large, unexplained "Goodwill" from overpriced acquisitions, or cash sitting idle with no clear plan.

5. The "Quality" of Earnings: Is the profit real?

• What to look for: The relationship between Net Income (on the Income Statement) and Cash Flow from Operations (which ties to the Balance Sheet change).

• What it means: If net income is consistently much higher than operating cash flow, it may be fueled by non-cash items or aggressive accounting, and may not be sustainable.

• Red Flag: Consistently high profits but negative or flat operating cash flow.

In summary, an investor uses the balance sheet not just to see what a company owns and owes, but to assess its financial health, risk profile, management strategy, and the sustainability of its reported profits.

This is a comprehensive collection of investment advice structured as a 33-section notes.

This is a comprehensive collection of investment advice structured as a 33-section notes. Here is a detailed summary of each section.

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Introduction: THE INTELLIGENT INVESTORS 

This section introduces the core text for the entire discussion: Benjamin Graham's The Intelligent Investor. It is highlighted as the definitive book on value investing, endorsed by Warren Buffett. Links to an e-copy, an audiobook, and various online summaries are provided to equip the reader with the foundational knowledge required for the topics to follow.

https://myinvestingnotes.blogspot.com/2025/11/introduction-intelligent-investors.html

Section 1: The Investment Policies based on Benjamin Graham

This section outlines Benjamin Graham's core investment policies, categorizing strategies for different goals (fixed income, moderate appreciation, and profit). It crucially distinguishes between "defensive" investors (who seek safety and minimal effort) and "enterprising" investors (who are willing to put in intelligent effort for higher returns). The fundamental difference between investment (thorough analysis, safety of principal, satisfactory return) and speculation is explained.

https://myinvestingnotes.blogspot.com/2025/11/the-investment-policies-based-on.html

Section 2: Knowing yourself – Investment Objectives, Time Horizon and Risk Tolerance

Emphasizes that successful investing starts with self-assessment. Before investing, one must clearly define their investment objectives, time horizon, and risk tolerance. A link to a questionnaire is provided to help readers understand their relationship with money. Personal financial capacity and cash flow are also noted as critical factors.

https://myinvestingnotes.blogspot.com/2025/11/knowing-yourself-investment-objectives.html

Section 3: Asset Allocation

Posits that asset allocation (how you divide your money among stocks, bonds, and cash) is the most critical factor in a portfolio's success, accounting for 90-95% of its returns. The five key factors for asset allocation are reiterated: investment goal, time horizon, risk tolerance, financial resources, and investment mix.

https://myinvestingnotes.blogspot.com/2025/11/asset-allocation.html

Section 4: Learning the stories of Some Successful Individual Investors

Presents case studies of successful, often frugal, investors to illustrate key principles:

• 4a: Anne Scheiber: A retired auditor who turned a small initial investment into a massive fortune through long-term, focused investing in blue-chip stocks and reinvesting dividends.

• 4b: Uncle Chua: A barely literate man who accumulated significant wealth by consistently investing in a portfolio of dividend-paying stocks.

• 4c: Warren Buffett: Highlighted as a "closet dividend investor" whose long-term holdings in companies like Coca-Cola generate enormous "yield on cost," demonstrating the power of holding great businesses.

• 4d: The Millionaire Tramp (Curt Degerman): A Swedish tramp who amassed a fortune by collecting cans and shrewdly investing the proceeds in the stock market and gold.

• 4e: Be like Grace (Grace Groner): A secretary who turned a single $180 investment in Abbott Labs into $7 million through 75 years of patient holding and dividend reinvestment.

https://myinvestingnotes.blogspot.com/2025/11/learning-stories-of-some-successful.html

Section 5: The Impact of Reinvesting Dividends

Uses powerful charts to illustrate the dramatic long-term impact of reinvesting dividends versus taking them as cash. Over many decades, reinvesting dividends contributes a massive portion of the total return from the stock market, turning average returns into exceptional wealth through compounding.

https://myinvestingnotes.blogspot.com/2025/11/the-impact-of-reinvestment-of-dividends.html

Section 6: Keep it Simple and Safe (KISS version). Strategies for buying and selling.

Provides a simple, safe framework for investment decisions:

• Buying (ABC): Assess Quality, Management, Valuation (QMV); Buy good quality stocks; at a Conservative price (Margin of Safety).

• Selling (1,2,3,4): 1) Need cash for an emergency; 2) Fundamentals permanently deteriorate (Urgent); 3) Stock is significantly overvalued (Offensive); 4) To reinvest in a better opportunity (Offensive).

https://myinvestingnotes.blogspot.com/2025/11/keep-it-simple-and-safe-kiss-version.html

Section 7: Concept of “Equity Bond” of Warren Buffett

Explains Buffett's concept of viewing a stock as an "equity bond." The share price is the "bond" and the company's pre-tax earnings per share is the "coupon" or interest payment. The key is that for a great company, this "coupon" increases over time, making the "bond" far more valuable than a fixed-income bond.

https://myinvestingnotes.blogspot.com/2025/11/concept-of-equity-bond-of-warren-buffett.html

Section 8: What is risk? Risk is not knowing what you are doing. The enemy (inflation) and the friend (compounding) of your cash.

Challenges the conventional definition of risk. True risk is not volatility, but the permanent loss of capital, often caused by investing in something you don't understand. For long-term investors, the biggest enemy is inflation, which erodes the purchasing power of cash, while the most powerful friend is compounding.

https://myinvestingnotes.blogspot.com/2025/11/what-is-risk-risk-is-not-knowing-what.html

Section 9: Return/Risk ratios of various Asset Allocations

Uses a chart to demonstrate that a portfolio of 80% bonds and 20% stocks can offer a higher return with lower risk than a 100% bond portfolio. This illustrates the counter-intuitive benefit of adding a modest amount of equity to a conservative portfolio to improve its risk/return profile.

https://myinvestingnotes.blogspot.com/2025/11/returnrisk-ratios-of-various-asset.html

Section 10: In the face of uncertainty, remember Pascal Wager

Applies Pascal's Wager (a philosophical argument about believing in God) to investing. Since the future is uncertain, one should focus on the consequences of being wrong rather than just the probabilities of being right. A margin of safety and diversification ensure that a single mistake is not catastrophic.

https://myinvestingnotes.blogspot.com/2025/11/pascals-wager-focus-more-on.html

Section 11: Diversification, market risks and stock specific risks

Distinguishes between two types of risk:

• Stock-specific risk: Can be largely eliminated by holding a diversified portfolio of 7-10 stocks.

• Market risk: Cannot be diversified away as it affects the entire market (e.g., recession, interest rates). For those unable to pick stocks, Buffett's recommendation of low-cost index funds is presented as a sound alternative.

https://myinvestingnotes.blogspot.com/2025/11/diversification-market-risks-and-stock.html

Section 12: Discussions on retirement investing & EPF

A practical discussion on whether to withdraw EPF savings at age 55. Key considerations include: the safety and decent historical dividends of EPF, the need for higher returns to beat inflation, and the investor's own ability and knowledge to manage the lump sum. The consensus is that leaving money in EPF is a good default option for the risk-averse.

https://myinvestingnotes.blogspot.com/2025/11/retirement-investing-epf.html

Section 13: Investing is most intelligent when it is most business like (Life cycles and types of company)

Argues that one should think like a business owner when buying stocks. It introduces frameworks for categorizing companies:

• 13a: Life Cycle: Stages from Start-Up to Decline, indicating dividend and growth potential.

• 13b: Peter Lynch's 6 Types: Sluggards, Stalwarts, Fast Growers, Cyclicals, Turnarounds, and Asset Plays.

• 13c: Buffett's 3 Gs: Great businesses (high returns, need little capital), Good businesses (decent returns, need more capital), and Gruesome businesses (grow fast but earn little).

https://myinvestingnotes.blogspot.com/2025/11/investing-is-most-intelligent-when-it.html

Section 14: Some articles to guide your EPF savings

Provides external articles discussing the pros and cons of lump-sum vs. partial EPF withdrawals, the challenge EPF faces in maintaining high dividends, and the importance of having a draw-down strategy for retirement funds.

https://myinvestingnotes.blogspot.com/2025/11/guide-for-your-epf-savings.html

Section 15: Your retirement money management

Offers a link to an article on defining wealth and managing money in retirement, focusing on shifting from accumulation to a sustainable withdrawal phase.

https://myinvestingnotes.blogspot.com/2025/11/how-do-i-manage-all-my-money-in.html

Section 16: An interesting assignment – how to invest $200,000?

Poses a practical challenge: how to invest a lump sum for a 60-year-old with a high-risk tolerance and a goal of 15% annual returns. The solution involves finding 7-10 "good quality growth companies" that meet stringent QMV criteria and buying them at a price that offers a significant margin of safety.

https://myinvestingnotes.blogspot.com/2025/11/how-to-invest-200000.html

Section 17: Finding good quality growth companies

Introduces a visual method for identifying quality companies: plotting their revenue and earnings per share on a log scale chart. A good quality growth company will show two parallel, upward-sloping lines, indicating consistent and predictable growth in both top and bottom lines.

https://myinvestingnotes.blogspot.com/2025/11/finding-good-quality-growth-companies.html

Section 18: Be a stock picker – bottom-up approach.

Encourages a bottom-up approach, focusing on the quality of individual companies rather than trying to time the market. Examples of "GREAT" companies (like Coca-Cola and Walmart) are shown, emphasizing that it's better to buy a wonderful company at a fair price than a fair company at a wonderful price.

https://myinvestingnotes.blogspot.com/2025/11/be-stock-picker-bottom-up-approach.html

Section 19: QMV method (QUALITY, MANAGEMENT & VALUATION)

Delves deeper into the QMV method, focusing on the valuation step. It explains how to project future earnings, determine a stock's historical high, low, and average P/E ratios, and calculate the potential return. The goal is to find stocks with an upside/downside ratio of at least 3:1 and a potential total return of >15% per annum.

https://myinvestingnotes.blogspot.com/2025/11/qmv-method-quality-management-valuation.html

Section 20: Definition of Investing by Benjamin Graham

Reposts Graham's precise definition of an "investment operation" to reinforce the core philosophy: it must be based on thorough analysis, promise safety of principal, and offer a satisfactory return. All other activities are speculative.

https://myinvestingnotes.blogspot.com/2025/11/definition-of-investing-by-benjamin.html

Section 21: Portfolio Management (The Gardening Approach)

Frames portfolio management as gardening:

1. Planning: Have a strategy.

2. Planting: Buy quality stocks at good prices.

3. Weeding: Sell losers and deteriorating stocks (defensive).

4. Feeding: Reinvest dividends.

5. Pruning: Sell overvalued stocks to buy better opportunities (offensive).

https://myinvestingnotes.blogspot.com/2025/11/portfolio-management-gardening-approach.html

Section 22: QMV worksheet (Page 1 - Quality & Management, Page 2 - Valuation)

Provides a two-page worksheet that operationalizes the entire QMV process. Page 1 checks for Quality of Growth and Management, while Page 2 handles the Valuation calculations, helping an investor make a disciplined, data-driven decision.

https://myinvestingnotes.blogspot.com/2025/11/qmv-worksheet-page-1-quality-management.html

Section 23: Four Investing Filters of Buffett (video). Always stay within your circle of competence.

Summarizes Buffett's four simple filters for stock selection: 1) Can I understand the business? (Circle of Competence), 2) Does it have a durable competitive advantage? 3) Is management able and trustworthy? 4) Is the price sensible? (Margin of Safety).

https://myinvestingnotes.blogspot.com/2025/11/four-investing-filters-of-buffett-video.html

Section 24: Games people Play. Choose the games you wish to play.

Applies game theory to investing. It advises playing "positive-sum games" (like long-term investing in productive assets) and avoiding "negative-sum games" (like frequent trading with high fees). Knowing which game you are in is crucial to success.

https://myinvestingnotes.blogspot.com/2025/11/games-people-play-choose-games-you-wish.html

Section 25: Durable Competitive Advantage – where you will find your riches.

Details the concept of a durable competitive advantage ("economic moat"), which is the key to long-term business success. Companies with moats typically fall into three categories: selling a unique product, selling a unique service, or being the low-cost buyer/seller. Their financial statements will show consistency in high profit margins and returns on capital.

https://myinvestingnotes.blogspot.com/2025/11/durable-competitive-advantage-where-you.html

Section 26: Another QMV (Technamental) worksheet

Presents another version of the QMV worksheet, showing how the philosophy can be implemented into a practical tool, potentially via software, to streamline the analysis.

https://myinvestingnotes.blogspot.com/2025/11/another-qmv-technamental-worksheet.html

Section 27: What you must know about Mutual Funds

Discusses the role of mutual funds (unit trusts) for investors who lack the time or expertise to pick individual stocks. It notes that most actively managed funds underperform the market index after fees, making low-cost index funds a highly recommended option for the majority of investors.

https://myinvestingnotes.blogspot.com/2025/11/what-you-must-know-about-mutual-funds.html

Section 28: Compounding, the 8th wonder of the world.

Celebrates the power of compound interest, using stories like Anne Scheiber and Warren Buffett to show that most wealth is built in the later years. The "Rule of 72" (72/interest rate = years to double) is introduced. The key message is to start early and let time work its magic.

https://myinvestingnotes.blogspot.com/2025/11/compounding-8th-wonder-of-world.html

Section 29: Behavioural Finance. The biggest enemy in investing is yourself.

Introduces Behavioral Finance, the study of how psychology leads to irrational financial decisions. It highlights "Recency Bias" (the "Party Effect"), where investors extrapolate recent market performance into the future, leading them to buy high and sell low. Overcoming these innate biases is critical.

https://myinvestingnotes.blogspot.com/2025/11/behavioural-finance-biggest-enemy-in.html

Section 30: Know what you are buying – investment products, insurance and mutual funds.

Offers practical warnings:

• Scrutinize the structure and fees of investment products (e.g., "capital guaranteed" funds may be misleading).

• Use insurance for protection, not as an investment vehicle.

• When choosing a fund, understand its stated investment philosophy, like the example from Magellan Funds provided.

https://myinvestingnotes.blogspot.com/2025/11/know-what-you-are-buying-investment.html

Section 31: SUMMARY OF A SOUND INVESTMENT POLICY

A concise recap of the core principles: Graham's investment policies for defensive and enterprising investors, and the KISS (Keep it Simple and Safe) strategy for buying (ABC) and selling (1,2,3,4).

https://myinvestingnotes.blogspot.com/2025/11/summary-of-sound-investment-policy.html

Section 32: Additional Notes

A collection of additional insights from Graham and Buffett, including:

• Enterprising investors should seek opportunities where price deviates from value due to market pessimism, complexity, or neglect.

• Beware of free investment advice from friends and relatives.

• Distinguish between market timing (speculation) and pricing (investing).

https://myinvestingnotes.blogspot.com/2025/11/additional-notes-collection-of-advanced.html

Section 33: May your investing be happy, safe and profitable over the long term.

A concluding section that recaps all the topics covered and reiterates the most important rule: Always prioritize the safety of your capital first. The ultimate goal is to build a sound investing philosophy that can be applied over the long term.

https://myinvestingnotes.blogspot.com/2025/11/may-your-investing-be-happy-safe-and.html