Yield on Cost: Buffett's Coke

April 21, 2024

Many investors are familiar with dividend yield e.g. a company with a share price of R100 paying a R3 dividend has a dividend yield of 3%. However, not a lot of investors have heard of yield on cost which is closely tied to dividend yield.

Yield on cost is the current dividend divided by your average purchase price. For example, you bought a share in a company for R50 in 2015 and the company paid a dividend of R2 in 2015 equating to a 4% dividend yield. Since then, the company has grown its dividend by 10% per year. So, in 2016, the company paid a dividend of R2.2. Currently, in 2022, the company is paying a dividend of R3.9 which implies that the yield on cost is 7.8% (R3.9/R50)!

Take Buffett's example of Coke which he bought in 1988. On his original investment of $1.3 billion, he is receiving more than $600 million in dividends which equates to a yield on cost of more than 50%!


I hope this post has inspired you take to keep investing in dividend companies for the long term. 


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