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Haven portfolio flourishes in stormy year

What are we looking for?

A test of how a conservative investing portfolio would have fared this year.

To find out, we checked in on the performance of the screen we ran on Jan. 10 to look for U.S. stocks with stable earnings and dividend prospects.

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More on today's screen

CPMS, a division of Morningstar Canada, constructed the screen. To pass, stocks must have had a market cap of at least $1-billion (U.S.) and a dividend yield of at least 2 per cent.

Each stock also had to meet several additional criteria:

–the dividend payout ratio must not have exceeded 80 per cent of the 12-month earnings estimate;

–dividend growth must have been positive over the previous year;

–total annualized dividend growth could not have been negative over the past five years;

–the five-year earnings growth rate must have exceeded the median of the more than 2,000 U.S. companies that CPMS tracked;

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–the expected price return on the stocks must have been higher than 5 per cent based on the median of analyst price targets.

More about CPMS

CPMS, a division of Morningstar Canada, provides quantitative North American equity research and portfolio analysis to primarily institutional clients. It covers more than 700 Canadian and 2,200 U.S. stocks, and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.

What did we find out?

Assuming the positions were equally weighted as of Jan. 10, the portfolio would have provided a year-to-date total return of 23.2 per cent. By comparison, the S&P 500 Total Return Index ticked in with a slight loss of 0.2 per cent over the same period.

The moral here? Conservative approaches that focused on income and dividend growth were well rewarded amid this year's volatility.

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About the Author

Ian McGugan is a reporter with The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010. He has been executive editor of Canadian Business magazine and founding editor of MoneySense magazine. More

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