Simply put, a dividend yield is a ratio between the yearly dividend of a company relative to its current share price. It can be found by dividing the yearly dividend by the current share price.
For example: Let’s say Loonie Bin Inc. pays a yearly dividend of $1.40 per share and has a current share price of $35. We can find its current dividend yield by dividing the yearly dividend by the current share price which gives us a yield of 4%, which can be seen in the example below.
Yield On Cost
When a dividend investor purchases shares, the yield from that specific investment is called the yield on cost. For example:
If you had purchased 100 shares of Loonie Bin Inc. 6 months before the above example at a share price of $29, your yield on cost of this investment would be 4.82%. This 4.82% is your return on investment (ROI) plus any share price appreciation, but I don’t include share price in my ROI unless I sell the individual investment.
As you purchase stocks to build your portfolio, it’s important to keep track of the share purchase price, as well as the dividend and the yield on cost of your investment so that you can easily keep track of your investment as it grows and the yield increases from dividend growth.