YOC - Is it important? U Bet!

[Temperament]

http://2.bp.blogspot.com/_XUD5K9wgUGI/Rz...-h/YOC.jpg

NB:- With reference to the above(sorry i can't paste it here or rather i don't know).

Extract:-
If you were judging your investments solely on current yield, they would be virtually the same in 2006 at slightly over 3%. However, based on your original investment, the YOC for RY is more than six times that of KO. This occurred while the average dividend growth rate for RY was only double that of KO - now that is the kind of leverage I like!

As an income investor, I would much rather have held RY during this period.

Of course this is another way of looking at a company that has growth yoy.
So don’t switch just because of higher current yield? The YOC of the higher current yield stock is more important?
In other words, we should compare YOC to YOC not only current yield.

Gentlemen,
Yes or No?

[roxhockey]

In answer to the question in your topic, the answer is just no. Not to be rude but there's just no situation where you should rationally use cost instead of market value to calculate yield. The only reason one would is for psychological factors, not rational thinking. For some investors this may help them to hold in down markets, hold for long term etc, and it may end up beneficial, but we shouldn't pretend that because of that yield on cost base is a relevant metric.

At any given time you can sell your stocks for their market value therefore you MUST use market value for yield, as that's how much you have invested.

Your example just goes to illustrate that its important to consider future dividend growth potential, not just current year dividend.

[Temperament]

i think the gist of this author concept can be found in the last paragraph. i only like to hear more opinions from talented and highly educated VBs.about this concept. Or maybe a better concept from VBs? Less I may be misled by this author. Anyone:-

[runicx]

Thanks for the illustration. I have been using YOC to watch my returns and more importantly, my 'breakeven point'. The point where my stocks have paid for themselves. Not too sure if this is something that is used by fellow VB widely but it kind of works for me.

[Temperament]

i think comparing YOC of a coy to YOC of another coy is more meaningful or powerful then comparing the current yield of a coy to the current yield of another coy. Only the former can tell you which coy is growing from Y to Y while the latter tell you nothing. Correct me if i have misunderstood the gist of the article. So be careful don't just switch your present holding to a higher current yield coy.
Cheers!