Normally, as dividend stocks' share price and dividends rise over time, the yield on their initial cost should also rise. However, when there are declines in share price, dividends or both, the yield on cost will also decline creating an inverted yield on cost.
Unfortunately, for my most of my income holdings and my income portfolio as a whole, yield on cost is inverted. Of the 35 securities currently in my income portfolio, only 11 of them are not inverted. Since my core rule is to sell a stock when it drops its dividend, all the inversion is coming from declining price. Stocks with an inverted yield resulting from a price decline would include these:
- Bank of America (BAC) - Current Yield: 8.22% - Yield On Cost: 5.39%
- American Capital (ACAS) - Current Yield: 19.00% - Yield On Cost: 10.45%
- Health Care Property Investors Inc. (HCP) - Current Yield: 5.02% - Yield On Cost: 5.71%
- Commercial Net Lease Realty, Inc. (NNN) - Current Yield: 6.61% - Yield On Cost: 7.00%
- Procter & Gamble Co. (PG) - Current Yield: 2.29% - Yield On Cost: 2.48%
- PepsiCo, Inc. (PEP) - Current Yield: 2.48% - Yield On Cost: 2.51%
All current yields listed above are as of 8/29/08.
Full Disclosure: BAC, ACAS, HCP, NNN, PG and PEP. See a list of all my dividend growth holdings here.
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