Let me tell you about a conversation I had with my friend Sarah last month. She'd been investing in SCHD for about five years and was feeling pretty good about her 3.8% dividend yield. But when I asked her about her "yield on cost," she gave me a blank stare.

"What's yield on cost?" she asked. It turns out, Sarah was missing out on one of the most motivating and useful metrics in dividend investing. Once I showed her how to calculate it, she discovered that her actual yield on her original investment was over 5% – and climbing every year!

Here's the thing: most investors only look at current yield, which tells you what you'd get if you bought today. But yield on cost shows you what you're actually earning on the money you invested years ago. It's like discovering you've been getting a raise every year without realizing it.

Yield on cost is beautifully simple: it's the annual dividend you receive divided by what you originally paid for the stock. That's it. But this simple calculation reveals something powerful about dividend growth investing.

Think of it this way: when you buy SCHD today at $80 per share and it pays a $3.10 annual dividend, your current yield is 3.88%. But what happens in five years when SCHD is trading at $120 per share and paying a $4.50 annual dividend?

New investors buying at $120 are getting a 3.75% yield ($4.50 ÷ $120). But you? You're getting a 5.625% yield on your original $80 investment ($4.50 ÷ $80). That's your yield on cost, and it's significantly higher than the current yield.

This is why dividend growth investing is so powerful. While the stock price might go up and down, your yield on cost generally only goes up (assuming the company keeps growing its dividend). It's like getting an automatic raise every year.

I remember when I first understood this concept. I had bought some Johnson & Johnson stock in 2010 for about $62 per share. By 2020, it was paying me a 4.8% yield on my original investment, even though new buyers were only getting a 2.6% yield. That's the power of time and dividend growth working together.

Let's walk through some real examples with SCHD. I'll use actual historical data to show you how this works in practice.

Example 1: The 2020 Buyer

Imagine you bought SCHD in March 2020 during the COVID crash at $45 per share. At that time, SCHD was paying about $0.51 per share annually, giving you a 1.13% yield. Not amazing, right?

But here's where it gets interesting. By 2025, SCHD is paying approximately $1.03 per share annually. Your yield on cost? A whopping 2.29%! That's more than double your original yield, and it happened because you held on and let dividend growth work its magic.

Example 2: The 2018 Buyer

Now let's look at someone who bought SCHD in 2018 at $52 per share when it was paying $0.40 annually (0.77% yield). This investor has watched their yield on cost grow to 1.98% by 2025. Not as dramatic as the 2020 buyer, but still nearly tripled!

What I love about these examples is how they show the power of time and patience. The investors who bought during scary times (like the 2020 crash) are being rewarded with higher yields on their original investment.

The chart above shows how yield on cost has grown for SCHD investors who bought at different times. Notice how the earlier buyers have higher yields on cost – that's the reward for getting in early and holding on.

Let me share some stories from real SCHD investors I've talked to. These aren't made-up examples – these are real people with real results.

Meet Tom: The Consistent Buyer

Tom started buying SCHD in 2019 and has been adding $500 every month since then. He's bought at prices ranging from $45 to $85 per share. His average cost basis is about $65 per share.

"I don't worry about the stock price anymore," Tom told me. "I just focus on my yield on cost. It's at 1.6% now and growing every quarter. That might not sound like much, but it's double what I started with, and I know it'll keep growing."

Meet Lisa: The Lump Sum Investor

Lisa inherited $50,000 from her grandmother in 2021 and decided to put it all into SCHD at $75 per share. She bought 666 shares and has been reinvesting dividends since then.

"My friends thought I was crazy putting it all in one ETF," Lisa said. "But my yield on cost is already at 1.4% and growing. Plus, with dividend reinvestment, I now own 712 shares without adding any new money."

What's really cool about Lisa's story is how dividend reinvestment has accelerated her yield on cost growth. Those reinvested dividends are buying more shares, which earn more dividends, which buy more shares – it's a beautiful cycle.

The Common Thread

What both Tom and Lisa understand is that yield on cost rewards patience and consistency. They're not trying to time the market or chase hot stocks. They're building wealth slowly and steadily, and their rising yield on cost is proof that it's working.

Every quarter, when SCHD announces its dividend, these investors get a little more excited. Not because they're getting rich quick, but because they know their yield on cost is climbing higher. It's like watching your savings account interest rate go up every few months.

Now here's where yield on cost becomes really powerful: it helps you make better decisions about when to buy, hold, or sell. Let me walk you through the decision-making framework I use.

When to Buy More SCHD

This is the trickiest question, and yield on cost can help you think about it differently. Instead of just looking at current yield, consider what your yield on cost might be in 5-10 years.

Let me give you a practical example. Right now, SCHD is yielding about 3.8%. That's decent, but not spectacular. But if SCHD continues growing its dividend at 8-10% annually (which it has historically), your yield on cost could be 5-6% in just five years.

When to Hold (Almost Always)

Here's where yield on cost really shines: it shows you why holding is usually the right move. Every time you're tempted to sell SCHD because it's "only" yielding 3.8%, remember that your yield on cost might be 4.5% or 5% or even higher.

I learned this lesson the hard way years ago. I sold some dividend stocks because their current yields looked low compared to what I could get elsewhere. But I forgot that my yield on cost was actually much higher. I essentially gave up a higher yield to chase a lower one. Don't make my mistake!

When to Sell (Rarely)

Yield on cost also helps you identify when it might be time to sell. If SCHD cuts its dividend, your yield on cost will drop. If the dividend stops growing for several years, your yield on cost stagnates while inflation eats away at your purchasing power.

But here's the thing: SCHD has never cut its dividend since inception. It's actually grown its dividend every year. So unless something fundamental changes about the ETF's strategy or the underlying companies, selling based on yield on cost concerns doesn't make much sense.

The bottom line? Yield on cost encourages long-term thinking. It shows you that time is your friend in dividend investing, and that patience is often rewarded with higher income over time.

Tracking your yield on cost doesn't have to be complicated. I'll show you a few different methods, from simple to sophisticated, so you can pick what works best for you.

Method 1: The Simple Spreadsheet

This is how I started, and it's still my favorite method. Create a simple spreadsheet with these columns:

Update this quarterly when SCHD announces its dividend. You'll be amazed at how motivating it is to watch your yield on cost climb over time.

Method 2: Portfolio Tracking Apps

If you prefer using apps, several portfolio trackers can calculate yield on cost for you:

• Personal Capital: Free tool that tracks YOC automatically
• Dividend Tracker: Specifically designed for dividend investors
• Portfolio Visualizer: Great for backtesting and analysis
• Simply Wall St: Provides YOC data and projections

Method 3: Brokerage Tools

Some brokers are starting to include yield on cost in their reporting. Schwab (SCHD's sponsor) shows this information in their portfolio analysis tools. Fidelity and Vanguard have similar features.

The key is to pick one method and stick with it. Don't overcomplicate it – the goal is to track your progress, not to become a spreadsheet expert.

I've made plenty of mistakes with yield on cost calculations over the years. Let me share the most common ones so you can avoid them.

Mistake #1: Forgetting About Reinvested Dividends

This is the big one. If you're automatically reinvesting dividends (which you should be), those reinvested dividends increase your cost basis. You can't just use your original purchase price forever.

Here's how it works: Let's say you bought 100 shares at $70 each ($7,000 total). After a year of dividend reinvestment, you now own 104 shares and your total cost basis is $7,280. Your yield on cost calculation should use $7,280, not $7,000.

Mistake #2: Comparing YOC to Current Yield

I see this all the time. Someone calculates their 4.5% yield on cost and then gets excited because it's higher than SCHD's current 3.8% yield. But that's not a fair comparison!

Your yield on cost reflects years of dividend growth. The current yield is what new investors get today. They're different metrics that serve different purposes.

Mistake #3: Obsessing Over YOC Too Much

Yield on cost is a great metric, but it's not the only thing that matters. I've seen investors hold onto stocks with high yields on cost even when the companies were clearly struggling. Don't let a high YOC blind you to fundamental problems.

Mistake #4: Not Accounting for Fees

If you're paying commissions or fees to buy SCHD, include those in your cost basis. A $100 share purchase with a $5 commission means your cost basis is $105, not $100.

Fortunately, most brokers offer commission-free ETF trading now, so this is less of an issue than it used to be.

Mistake #5: Getting Discouraged by Low Initial YOC

Your yield on cost will be low when you first start investing. That's normal! It takes time for dividend growth to work its magic. Don't get discouraged if your YOC is only 1.5% in your first year – that's actually pretty good for a new investment.

The key is to focus on the trend, not the absolute number. Is your YOC growing over time? That's what matters.