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Opening Christmas presents is a treat for children, but these days I’d rather have my stocking stuffed with dividends and kept well away from the fire. After all, dividends can pay for a comfortable retirement and many happy holidays.

I regularly track three Canadian dividend portfolios for The Globe and Mail and I’ve bundled them together for a holiday update and comparison. Today’s dividend stars are the Stable Dividend portfolio, the Frugal Dividend portfolio and the Dividend Monster portfolio. The first buys stocks with stable past returns and the second adds a value twist. The third is the spiciest of the bunch, because it picks high-yield stocks with momentum.

All three portfolios start with dividend-paying stocks from the largest 300 common stocks on the Toronto Stock Exchange, which typically results in roughly 200 stocks to choose from. The Stable Dividend portfolio picks the 20 dividend payers with the lowest volatility over the past 260 days. The Frugal Dividend portfolio starts with the 50 dividend payers with the lowest volatility over the past 260 days, and then picks the 10 with the lowest price-to-earnings ratios (P/E). The Dividend Monster portfolio focuses on the half of dividend stocks with the best yields and picks the 10 with the highest returns over the past year.

All three portfolios are back-tested assuming an equal amount of money is put into each stock and the portfolios are rebalanced monthly. (The returns herein are based on monthly data from Bloomberg and include dividend reinvestment, but not fund fees, commissions or other trading costs.)

You can see the return history of the three portfolios, along with the market index (as represented by the S&P/TSX Composite Index), in the accompanying graph.

The Dividend Monster portfolio provided the best returns over the 25 years through to the end of November, 2023, with average annual gains of 14.7 per cent, but the gains exhibited the highest volatility (standard deviation). The Frugal Dividend portfolio fared almost as well, with average annual returns of 14.2 per cent over the same period, but it was a good deal less volatile than the Dividend Monster. The Stable Dividend portfolio provided the smoothest ride of the bunch, but generated average annual returns of 12.6 per cent over the period. Mind you, they all beat the market index’s annual gains, which averaged 7.5 per cent over the 25-year span.

The second graph highlights difficult periods for the three portfolios and shows how far they fell from their prior peaks. The market index was excluded in this case in an attempt to avoid cluttering up the graph. But it is important to point out that the index suffered through a 43 per cent decline in the early 2000s after the internet bubble burst, while the three dividend portfolios hardly noticed the downturn.

Unfortunately, the same cannot be said of the financial crisis of 2008-09. While the market index gave up 43 per cent from its highs to its lows in 2009, the Dividend Monster portfolio fared worse with a drop of 52 per cent. (Momentum-based portfolios often have a hard time dealing with significant market downturns.) The Frugal Dividend portfolio fared better in the crisis, with a decline of 33 per cent, and the Stable Dividend portfolio skated through with a decline of 22 per cent.

The COVID-19 crash of 2020 was sudden but thankfully relatively short-lived. The market gave up 22 per cent by the end of March, 2020, while the Dividend Monster portfolio dropped 25 per cent, the Frugal Dividend portfolio fell 24 per cent and the Stable Dividend portfolio slipped 18 per cent.

More recently, the move by the central banks to boost interest rates hurt many dividend stocks and there’s a chance the pain might not be over quite yet. So far, the market index has declined 14 per cent from its prior high while the Dividend Monster portfolio has fallen 24 per cent. The Frugal Dividend portfolio has given up 20 per cent and the Stable Dividend portfolio has slid 13 per cent.

With a little luck, the dividend portfolios will continue to generate good returns over the long term with reasonable to modest levels of volatility. If they do, they’ll help many a Mr. Fezziwig fund holiday merriment for years to come.

You can find the stocks in the three dividend portfolios via this link, which also provides updates to many of the other portfolios I track for The Globe and Mail.

Norman Rothery, PhD, CFA, is the founder of

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