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Strategies & Market Trends : Dividend investing for retirement
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To: Debt Free who wrote (3555)1/30/2010 6:35:51 PM
From: Kip S  Read Replies (2) of 34328
 
I believe you are absolutely correct Debt Free. "Yield on cost" is a measure that might make you feel good as your dividend rises over time, but it can easily lead to poor financial decisions.

Say you bought a stock with a 4% yield 15 or 20 years ago. It is not inconceivable that your "yield on cost" could be 20%, 30%, or more. If the stock price rose more rapidly than the dividend during that period, your current yield would be lower, say 2%. By focusing on "yield on cost" instead of current yield, you would be a lot less likely to examine that current yield critically and take what may be a sensible step: Sell your winner and put the proceeds in another 4% stock. Even if you had to pay capital gains taxes, you would be far, far ahead.
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