YOC could be considered a secret because it’s boring. I rarely hear from clients on the topic, but trust me—this is one of the most important measures for long-term investment success.
What Is Yield on Cost?
Not to be confused with YOLO. It’s the exact opposite.
It’s simple: how do you get your money back when you invest in a stock (or any other vehicle)? You’d often have to sell that investment to see your money return. But what if I told you some investments pay you back without ever selling?
Enter dividends.
How Dividends Work
When you buy shares in a well-run, mature company, they might pay you a quarterly dividend. This is a portion of their excess profits, which they can either reinvest into the company or distribute to you, the shareholder. Some companies, known as “Dividend Aristocrats,” have paid dividends for 50 years or more. Even better, some have increased those dividends annually for the past 25 years.
Why This Matters
Here’s why dividend-paying stocks are a powerhouse: You get to compound your returns in two ways.
First, by reinvesting your quarterly payments, you buy more shares.
Second, if the company raises its dividend, you earn even more on those additional shares.
Over time, this creates a snowball effect of increasing cash flow—quarter over quarter, year over year.
A Personal Example
Take Hershey Chocolate, for instance. I bought shares back in 2008, right before the Great Financial Crisis—horrible timing, right?
However, I’ve seen significant returns by reinvesting the dividends and benefiting from the company’s periodic payout increases. Now, 16 years later, I receive a substantial percentage of my initial investment each year in dividends.
How to Find These Gems
Finding these dividend-paying stocks is easier than you think. Look for Dividend Aristocrats or Dividend Kings—companies that have consistently paid and grown their dividends. However, remember two key things:
- Choose a stable company that can maintain and grow its dividend.
- Buy at a price where the dividend yield is attractive. You don’t need to catch the absolute low but look for a good entry point.
Some examples? Coca-Cola, Johnson & Johnson, and Hershey. Buy them, then sit back and monitor.
Get Started Today
Let the compounding effect work for you, and start building that income stream for life.
Reach out to me, and let’s talk about your options—and build that!
