What are we looking for?
A portfolio that can put dollars in your pocket without gnawing at your stomach lining. To be more precise, we're looking for stocks that would appeal to a retiree looking for stable income and low volatility.
Sean Pugliese and Rob Belanger of Wickham Investment Counsel in Hamilton developed this screen. They searched among TSX stocks for ones that met three criteria:
-A market capitalization of more than $1-billion. Screening out small cap stocks reduces volatility and increases safety.
-Low volatility. To make the cut, a stock had to have a "beta" of less than 1, indicating it moves up and down less than the overall market.
-A dividend yield of more than 4 per cent a year.
To focus the list even further, they searched for companies with dependable earnings, which they measured by looking for firms with low earnings variability from quarter to quarter and year over year.
In addition, they sought companies with dividend momentum – in other words, dividends that are either flat or growing.
What we found
The 25 Canadian companies listed here are all relatively large. As a group, they provide an investor with diversification among many industry sectors, while providing an impressive yield of 5.4 per cent.
An investor who bought this portfolio in January would be very happy right now. It has returned 8.2 per cent, year to date, while the TSX has lost 10.3 per cent.
Of course, that market-beating performance reflects the rush to safety that has occurred over the past few months. A cautious, conservative approach like this would probably not beat the index in more prosperous times.
But even in a less tumultuous environment, this strategy – based on holding a diversified group of low-volatility, high-yielding stocks – should satisfy the needs of many conservative, income-seeking investors.