This financial tool helps investors determine the current return on their initial investment. For example, if an investor purchased a stock for $100 and it now pays an annual dividend of $5, the tool would calculate a 5% return. This differs from other return metrics as it focuses on the initial investment price, regardless of the asset’s current market value.
Understanding the return relative to the original investment provides valuable insight into long-term investment performance. It can help assess the effectiveness of investment strategies and inform future investment decisions. Historically, this metric has been favored by long-term, dividend-focused investors. Its emphasis on the initial outlay makes it particularly relevant for evaluating the profitability of assets held for extended periods.
