yield on cost

Most people who have kept a bag of rice from three years ago will tell you they paid a lot less for it then than what rice costs now. Nobody walks into the market today and says the rice is cheap because of what it cost in 2021. But strangely, many investors do exactly this trick in reverse when they judge how well their shares are paying them, and Yield on Cost is the proper way to make sense of it.

Here is the idea. When you buy a share, say for ₦100, and the company pays a dividend, that dividend is usually a percentage of the current share price. But your own personal return should be measured against what you actually paid, not against today's price. If the share has grown to ₦300 and the dividend has grown too, your true reward, measured against your original ₦100, can look far more generous than the yield everyone else is quoting.

Take someone who bought shares in a Nigerian bank years ago when the price was low and dividends were modest. The bank has grown, the dividend per share has grown with it, and today's investor buying at the current higher price earns a smaller percentage yield. But the old investor, still holding the same shares bought cheaply, is calmly earning a much higher percentage on their original ₦100. That gap between the two is exactly what Yield on Cost reveals.

A Nigerian in London sending money home to invest in a dividend paying stock, then holding it for ten years while the company raises its payout yearly, will eventually find their Yield on Cost climbing well past what new buyers are getting. It rewards patience and it rewards buying early, which is a rare kind of financial justice.

This is why long term investors watch this number closely. It tells you whether your old decision to hold on was worth it, even if the market's daily yield quote makes the stock look unremarkable to someone just walking in today.