What is the dividend yield on your portfolio

[NW-Bound]

If you want to compare your assets to the alternatives, then you have to look up YOC for everything, right?

But then, how are you going to go back in time (and what time) to get that better asset at that original cost?

So, it looks like you will have to hold your current assets forever, because you cannot compare them with anything.

 

[jollystomper]

I only look at dividends as how they contribute to our income. Since retiring they are one reason our cash flow has been a lot smaller than I projected. But I am happier with total return. For example, the appreciation in Microsoft stock I have had since the 1990s is much better than the dividends I have received from them .

 

[Dash man]

If you want to compare your assets to the alternatives, then you have to look up YOC for everything, right?

But then, how are you going to go back in time (and what time) to get that better asset at that original cost?

So, it looks like you will have to hold your current assets forever, because you cannot compare them with anything.

It’s early and I’m not finished with my coffee, but this makes no sense to me.
YOC is calculated using the current dividend against the purchase price of the stock, whether it was one, five, ten or more years. It will be different for each individual.

 

[NW-Bound]

Perhaps investopedia can explain it better than I can.

.... just because a stock's YOC is higher than the current dividend yield of another company, it does not mean that the stock with the higher YOC is necessarily the better investment. That is because the company with the high YOC may actually have a lower current dividend yield than other companies.

In these situations, the investor could be better off selling their shares in the high YOC company and investing the proceeds in a company with a higher current dividend yield.

 

[audreyh1]

I only look at dividends as how they contribute to our income. Since retiring they are one reason our cash flow has been a lot smaller than I projected. But I am happier with total return. For example, the appreciation in Microsoft stock I have had since the 1990s is much better than the dividends I have received from them .

Much more tax efficient that way!

 

[Dash man]

Perhaps investopedia can explain it better than I can.

Of course you have to consider future growth prospects of the current yield as well as the stock price. Buy a stock based on a current high yield can be a bad move. Look at MSFT, a stock paying only a little over 1% dividend, yet it grows that dividend an average of 10% per year. VZ pays a high dividend of over 6% per year but only grows it 2% per year. Which stock would you rather own? I own MSFT and have for many years. It’s paying me a 5.08% yield on cost but it’s stock price has soared 400%. I used to own VZ. It payed a nice dividend, but it’s stock price is lower than it was ten years ago, and was never higher than about 50% of its price ten years ago.

 

[Taco]

Yield on cost gives a more accurate representation of the value of a dividend investment.

A stock that regularly increases a dividend that raises yield on cost is meaningless? That’s like saying the price increase of a stock is meaningless.

Dash, YOC does not show you how well a stock's dividend has performed.
Example - 2 stocks, AAA and BBB:

	AAA	BBB
Purchase Price	$10	$10
Original Dividend	$0.20	$0.20
Current Dividend	$1.50	$1.50
Yield on Cost (YOC)	15%	15%
Year purchased	2015	1995

Both have the same YOC. Both have seen the dividend grow from .20 to 1.50. But one took 20 years longer.
YOC tells you they are the same, but they are not. Looking at the dividend growth rate, rather than YOC, would show that AAA has had better dividend growth.

You mentioned that "That’s like saying the price increase of a stock is meaningless."
Yes - a statement like "my stock has doubled in value" is somewhat meaningless, without also considering whether it doubled in value over 1 year or 10 years. Time matters. YOC ignores time.

 

[NW-Bound]

Of course you have to consider future growth prospects of the current yield as well as the stock price. Buy a stock based on a current high yield can be a bad move. Look at MSFT, a stock paying only a little over 1% dividend, yet it grows that dividend an average of 10% per year. VZ pays a high dividend of over 6% per year but only grows it 2% per year. Which stock would you rather own? I own MSFT and have for many years. It’s paying me a 5.08% yield on cost but it’s stock price has soared 400%. I used to own VZ. It payed a nice dividend, but it’s stock price is lower than it was ten years ago, and was never higher than about 50% of its price ten years ago.

We all agree with what you wrote above.

So, why look back in the past to that YOC? I look at the present stock condition, and try to see its future prospects.

 

[Dash man]

Dash, YOC does not show you how well a stock's dividend has performed.

Example - 2 stocks, AAA and BBB:

	AAA	BBB
Purchase Price	$10	$10
Original Dividend	$0.20	$0.20
Current Dividend	$1.50	$1.50
Yield on Cost (YOC)	15%	15%
Year purchased	2015	1995

Both have the same YOC. Both have seen the dividend grow from .20 to 1.50. But one took 20 years longer.

YOC tells you they are the same, but they are not. Looking at the dividend growth rate, rather than YOC, would show that AAA has had better dividend growth.



You mentioned that "That’s like saying the price increase of a stock is meaningless."

Yes - a statement like "my stock has doubled in value" is somewhat meaningless, without also considering whether it doubled in value over 1 year or 10 years. Time matters. YOC ignores time.

Why would you compare the YOC between two stocks that were purchased 10 years apart? That makes no sense.

 

[Dash man]

We all agree with what you wrote above.



So, why look back in the past to that YOC? I look at the present stock condition, and try to see its future prospects.

So a stock’s history of being well managed and regularly raising its dividend over 10, 20, even 50 years doesn’t give you an indication of its future prospects? Okay.

 

[NW-Bound]

So a stock’s history of being well managed and regularly raising its dividend over 10, 20, even 50 years doesn’t give you an indication of its future prospects? Okay.

Not really. In the long run, all companies go defunct. So, many things change in 5, or 10 years. We change (not for the better), then we die too.

This reminds me of a recent thread by Christine, where she talked about "horsey" stocks.

 

[Taco]

Why would you compare the YOC between two stocks that were purchased 10 years apart? That makes no sense.

Well, you had said that "Yield on cost gives a more accurate representation of the value of a dividend investment."
I gave an example where knowing that the YOC was 15% did not give us a very good indication of how valuable the dividend had been. In one case, 15% YOC was much better than in the other case.

It sounds like we agree that comparing the YOC between different investments does not make sense.

And if so, it seems to follow that YOC, by itself, does NOT give a good representation of how well a stock's dividend has performed (since 15% might be good or maybe not so good).

 

[Dash man]

Well, you had said that "Yield on cost gives a more accurate representation of the value of a dividend investment."

I gave an example where knowing that the YOC was 15% did not give us a very good indication of how valuable the dividend had been. In one case, 15% YOC was much better than in the other case.



It sounds like we agree that comparing the YOC between different investments does not make sense.



And if so, it seems to follow that YOC, by itself, does NOT give a good representation of how well a stock's dividend has performed (since 15% might be good or maybe not so good).

I never said YOC by itself was a good indicator to purchase a stock. I said it was an indicator of a healthy company growing its dividend. It needs to be compared with other factors, including the payout ratio to make sure the dividend is safe and has room to grow.
YOC and the dividend’s CAGR tell me dividends are beating or at least keeping up with inflation, providing me with a “pay raise” each year.

 

[robls]

I only pay attention to total return.

My SO and I use dividend income in combination with Social Security, and my small pension for living expenses
We piled monies into our Roth IRA's and 401k's leading up to retirement.
Have never sold a share of stock in the 11 years since our retirement.
Our portfolio total value fluctuates(duh!), and our total dividends per year go up each and every year.
The only hard part is keeping on eye on the stocks we hold. Not really a hard thing when you invest in solid companies like MSFT, PG, etc...
To each his own.