The Yield-on-Cost Equation: The Most Worthwhile Two Minutes An Income Investor Can Spend

by Marc Courtenay

Your latest bank statement, no doubt, demonstrated again that our interest-bearing accounts (or money market funds) are paying next to nothing. No wonder higher yielding investments look so tempting.

But no matter how tempting, my days of chasing inflated yields are over. I've been burned too many times buying stocks like Freeport-McMoran, Dow Chemical, or Alcoa, only to have them suspend or reduce their dividend payment.

And each time, of course, the stock price sunk.

But a loss isn't really a loss if you've truly learned something… or so goes the old saying.

Two key points here:

• For starters, don't be swayed by the current dividend yield and ignore the safety and stability of the investment.
• And perhaps even more importantly, never overpay for a stock – no matter how high the dividend yield.

In this report , I'll show you how to avoid both income traps using one simple equation you probably never knew existed…

Yield-on-Cost: Leaving Nothing to Chance

Income investors, like us, must measure success differently than growth and total return investors. And the way we do it is by utilizing an amazingly useful metric called "yield-on-cost."

The yield-on-cost calculation tells us exactly how much income an investment is paying us from day one.

The formula is very easy to use… Simply divide your current annual dividend (found on Yahoo! Finance) by the original cost you paid for your shares of stock. The result is your yield-on-cost.

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