About Yield Calculator
Yield is one of the most quoted numbers in income investing, yet it is often misunderstood. The Yield Calculator computes two distinct views of the same cash flow: current yield, which measures income against today's market price, and yield on cost, which measures income against what you originally paid. Suppose a stock pays $2,000 in annual dividends and currently trades for $50,000. The current yield is 4.0%. If you bought the same position for $40,000, your yield on cost is 5.0%. That gap matters. Current yield tells you what a new buyer would receive today, while yield on cost shows how generously your original capital is now working. Over time, companies that raise dividends can push yield on cost well above 8% or 10% even as current yield stays flat. This dual perspective helps dividend growth investors, retirees living off portfolio income, and real estate owners compare rental properties against dividend stocks.
How It Works
The calculator accepts three inputs: annual income, current market price, and original cost basis. Current yield divides annual income by the current price and multiplies by 100 to express it as a percentage. Yield on cost divides the same annual income by the cost basis and also multiplies by 100. Both calculations assume the annual income figure is stable for the next 12 months. The tool does not forecast dividend changes, price appreciation, or reinvestment.
Formula & Calculation Logic
Current Yield = (Annual Income / Current Price) × 100. Yield on Cost = (Annual Income / Cost Basis) × 100. Annual income is the numerator in both cases because yield measures how much cash flow an investment produces relative to a price denominator. Using current price shows the opportunity cost for a new investor; using cost basis shows the efficiency of the capital already committed. The formulas assume income is paid annually and is consistent with recent distributions.
Step-by-Step Guide
- Step 1: Enter the total annual income produced by the investment.
- Step 2: Enter the current market price or value of the investment.
- Step 3: Enter your original cost basis.
- Step 4: Review the current yield and yield on cost results.
- Step 5: Use both numbers together to judge income quality and capital efficiency.
Example Calculations
- Scenario 1: A rental property generates $18,000 per year in rent and is valued at $450,000. Current yield is 4.0%. If purchased for $300,000, yield on cost is 6.0%.
- Scenario 2: A dividend stock pays $1,200 annually and trades at $40,000. Current yield is 3.0%. With a cost basis of $25,000, yield on cost is 4.8%.
Common Use Cases
- Evaluating dividend stocks against savings account interest rates.
- Comparing rental property income to current property value.
- Tracking how dividend growth improves returns on legacy positions.
- Screening income investments for retirement cash flow.
Pro Tips
- Reinvested dividends should be added to cost basis for accurate yield on cost.
- Compare current yield to the yield on cost to spot dividend growth over time.
- Use yield alongside payout ratio and free cash flow to assess sustainability.
- Do not chase yield alone: a very high yield can signal distress or a falling price.
Common Mistakes to Avoid
- Confusing current yield with total return.
- Using a one-time special dividend as the annual income figure.
- Ignoring that yield rises when the price falls, which can be a warning sign.
- Forgetting to update cost basis after dividend reinvestment or stock splits.
Why Use This Tool?
- Separates what a new buyer earns from what your original capital earns.
- Quickly compares income investments across asset classes.
- Highlights the power of dividend growth over time.
- Supports retirement planning with clear cash-flow metrics.