Wednesday, February 27, 2008

* Tracking Yield On Cost

As noted in my articles Yield on Cost: Measuring for Success and Investing Goals, I consider Yield on Cost (YOC) an important metric. As such, I track it on each of my individual dividend income investments.

In the article The Winning Score - Part 2 of 2, I extracted from my two massive financial spreadsheets a sample model [it is linked on the tools page as D4L-Portfolio.xls] from the portfolio section. This model contains several elements worthy of discussion. Today we will focus the Yield On Cost (YOC) calculation.

YOC is tracked in columns Q and R. Rows 1, 2 and 3 provide a color-coded key for your reference. Cell Q11 contains the investment's most recent yield, R11 provides a weighted-average YOC for all the shares of the investment held.

Moving down one row, cell Q12 displays what the BAC's yield was on 4/22/2005, when I purchased 34 shares. In this case it was 4.01%, based on a quarterly dividend of $0.45, as shown in cell R13. Since I purchased BAC on 4/22/2005, the quarterly dividend has increased to $0.64 per share. Cell R12 contains the YOC for the 4/22/2005 purchase. You can see the dramatic effect of the three dividend increases, taking the initial yield of 4.01% to a 5.71% YOC.

In cells Q14, Q20, and Q27, you can see BAC has had some impressive dividend increases of 11.11%, 12.00% and 14.29%, respectively. On the date of each subsequent purchase of BAC, the per share price and current yield (col. Q) were higher than my initial purchase. This means the dividend per share was rising faster than the share price - From 04/22/2005 to 07/05/2007 the share price increased 10.8% while the dividend increased 42.2%.

The date in cell A1 has been hard-coded to =DATE(2008,2,4). If you decide to use some variation of this model, you will want to change the formula in cell A1 to =NOW(). This will populate the cell with the current date, which in turn will constantly update the YTD and LTD IRR calculations.

As always, I hope you find this model entertaining and useful.

Disclaimer: This model is for illustrative and educational purposes only. The author and Dividends4Life makes no claims or assertions as to the model's accuracy, completeness, appropriateness of use, or any other claim or assertion. You should not rely on this model or base any financial decisions on it.

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