It was in an e-mail I received from one of my Daily Paycheck subscribers the other day.

I thought it was a great suggestion.

“Would you please consider displaying yield in the portfolios as both ‘current yield‘ and ‘yield on cost?”

I think it is equally important to show ‘current yield’ as a way to help make decisions on whether to get into a stock and “yield on cost” as a way to show what our actual yield is on stocks already purchased into the portfolio.”

In both The Daily Paycheck and Dividend Opportunities, I talk most often in terms of current yields, or the security’s annual distribution divided by the current price — which is what most of us income investors are familiar with — and the yield new buyers can expect to collect if they buy the shares right now.

But it’s really only half the story. Perhaps just as important is a lesser-known metric: Yield on cost.

The term sounds a little cumbersome, maybe even a little technical. Put simply, yield on cost is an investment’s annual distribution divided by the cost when you bought it.

For instance, say XYZ pays an annual dividend of $1.00 and is currently trading at $15.00 a share. The current yield would be 6.7% ($1.00/$15.00).

But if I was lucky enough to buy XYZ at $10.00, my initial investment is yielding much more than 6%. In fact, my yield on cost is 10% ($1.00/$10.00).

That’s one way yield on cost can increase. Another is if the distribution is increased. That’s when you can see a soaring yield on cost, even if shares don’t gain a dime.

For instance, if XYZ’s annual payments increased from $1.00 to $1.50 over the course of three years, while the share price made the same move from $10.00 to $15.00, then the yield on cost would grow from 10% to 15% ($1.50/$10.00).

Action to Take –> When people look for income investments, they focus on the stability of the dividend and capital preservation. But when we look at a metric like yield on cost, you start to see that yields can grow more than you might think with “boring” income investments. (I detailed two great examples of this phenomenon a few weeks ago.)

As for my reader’s request, I put up the information for subscribers and was pleasantly surprised with what I found. One of my holdings has a current yield of just 5.8%… but I’m earning a yield on cost of 10.3% after just seven months. That’s thanks largely to a 60% gain in the stock since August.

Earning a capital gain of 60% while making nearly double the yield of new investors? It doesn’t get much sweeter for income investors.

P.S. — To learn more tricks about creating your own Daily Paycheck portfolio, be sure to read this memo. In 2010, my boss was able to earn $112.77 for every day of the year.