Wizard wrote:miner1000 wrote:
I think you will find that Centrica has always paid well in excess of 5% dividend on my purchase price sometimes much more than 5%.
Is that a meaningful metric though?
I've never thought that '
yield-on-cost' is anything more than a comfort-blanket figure, given that it doesn't take into account the real deliverable yield of the particular share at it's current price.
So long as everyone full understands that, then that's great, but the danger with discussing '
Yield-on-cost' without the necessary checks and reminders as to what it's actually telling us, is that anyone not familiar with the risks behind using such figures might go away thinking it's a great metric telling you more than it really does.
As long as we fully understand that it's telling us the yield based on the
current dividend against the
historical price paid for the share, then that's fine, we're all happy, but that share price normally can't be achieved
today, so the only relevant figures
today are the yield figures based on
today's share price....
By way of a clear explanation, consider this -
1. We buy a share 10 years ago for 100p, and it paid 4p dividend then. The yield at the time was therefore 4p/100p = 4%
2. Fast forward 10 years, and the share price is now 800p, and it's paying a 15p dividend. The yield now is 15p/800p = 1.875%
3. The 'Yield on Cost', for those interested, is 15p/100p = 15%. (Sounds great, doesn't it.....)
4. The Current Yield, however, is 1.875%......(Not so good compared with any possible higher-yielding alternative we may wish to consider....)
Like I say, it's all good so long as we're clear as to the risks of placing too much emphasis on such
historical metrics, and we all understand
what it's telling us,
why it's telling us this, and what it's
not telling us....
What interests me is how my capital is performing
today against possible alternatives to where it might work better for me, not how it's performing today compared to when I committed it
all those years ago....
Cheers,
Itsallaguess