Two investors hold the same stock and collect the same dividend, and yet one says the yield is 2%, while the other talks about 6%. Both are right. The difference lies in what they relate the dividend to: the current share price (which all stock portals logically do) or their own cost basis.
What is the personal dividend yield?
The personal dividend yield, also known as "yield on cost" (YoC), relates the current annual dividend to the price you paid when you bought, not to today's market value. That is why the metric is personal: two investors who bought the same stock at different times have a different YoC, even though the company pays out exactly the same dividend.
The formula
The only difference between the two metrics is in the denominator:
The cost basis is the price at which you bought the share, including any fees and taxes incurred.
A worked example
Suppose you buy 100 shares of a company at €50 each, so you invest €5,000 in total. The dividend is €1.50 per share, so your initial yield is exactly 3.0%. Over the years the company raises its dividend by about 7% a year on average, and the share price rises along with it. This is how the picture develops:
| Year | Dividend per share | Share price | Dividend yield | Pers. dividend yield |
|---|---|---|---|---|
| 0 | €1.50 | €50.00 | 3.0% | 3.0% |
| 5 | €2.10 | €90.00 | 2.3% | 4.2% |
| 10 | €3.00 | €150.00 | 2.0% | 6.0% |
In this example, the classic dividend yield even falls, because the share price rises sharply. The personal dividend yield, on the other hand, doubles: the grown dividend meets an unchanged cost basis.
Drawbacks
Although the metric is very intuitive, it also has some well-founded drawbacks.
First, YoC is purely a rear-view-mirror metric. It is tied to a price that, economically speaking, no longer plays any role today. The capital actually tied up in the position equals its current market value, not the historical purchase price.
This leads to the second argument, opportunity cost. For the question "hold or sell?", what counts is the current yield, not the YoC. A personal dividend yield of 6% on a position that currently yields only 2% also means: the capital tied up today earns only 2%. That capital might be better off in another stock.
Which brings us to the third point, emotional anchoring. "I'm not selling the position because I get a 10% dividend every year, I don't get that from any other asset" is a sentence that may sound sensible at first but is dangerous on closer inspection. After all, you should never think in the past tense, which happens all too easily. The personal dividend yield says nothing about whether a company is still convincing in quality today or fairly valued.
Conclusion
The personal dividend yield is a nice illustration of why dividend growth and time are such a powerful combination. But it remains a rear-view mirror. Treat it as what it is: a tracking metric that lets you follow a stock's dividend growth, not a buy or sell signal. For actual decisions, depending on your strategy, the valuation, the safety, the technical chart picture and/or future growth are far more relevant.