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We give thanks and feast every year when the harvest comes in. But autumn is also traditionally a good time to buy stocks and plant investment seeds for the years to come.

The Frugal Dividend portfolio offers a crop of stable dividend payers trading at bargain prices. It’s the value investing variant of the Stable Dividend portfolio, which I highlighted in September.

The process begins with the largest 300 common stocks on the TSX (as measured by market capitalization). All of the large Canadian stocks are put into an equally weighted portfolio that’s rebalanced monthly. It climbed by an average of 9.9 per cent annually from the end of January, 1995, through to the end of September, 2022. In comparison, the S&P/TSX Composite Index, a reasonable proxy for the Canadian market, gained an average of 8.3 per cent over the same period. (All the returns herein are based on data from Bloomberg and include dividend reinvestment, but not inflation, taxes or trading frictions.)

But many Canadian investors prefer stocks that pay dividends. The Basic Dividend portfolio keeps the roughly 200 stocks that pay dividends from the original 300 stock portfolio. This dividend portfolio gained an average of 11.8 per cent annually over the same period, assuming equal weighting and monthly rebalancing. The return advantage helps to explain why Canadians are fond of their dividends.

Frugal Dividend Portfolio

NameTickerPriceYield (%)Volatility (%)P/E
Algoma CentralALC-T$16.364.222.68.1
Bank of MontrealBMO-T$125.294.419.59.3
Bank of Nova ScotiaBNS-T$
Cogeco CommunicationsCCA-T$72.503.922.17.8
E-L FinancialELF-T$880.851.122.82.3
Great-West LifecoGWO-T$31.476.217.61.7
National BankNA-T$90.334.119.79.2
Sun LifeSLF-T$58.004.817.99.2

Source: Bloomberg, Norman Rothery

The Stable Dividend portfolio takes the Basic Dividend portfolio and goes another step by focusing on the 20 stocks with the lowest volatility (over the prior 260 days). The portfolio gained an average of 14.9 per cent over the same period, assuming monthly rebalancing and equal weighting.

The Frugal Dividend portfolio marries low volatility with value. It starts with the roughly 200 stocks in the Basic Dividend portfolio, narrows in on the 50 with the lowest volatility (over the prior 260 days) and then picks the 10 with the lowest positive price-to-earnings ratios.

You can see the spectacular results in the accompanying graph. The Frugal Dividend portfolio gained an average of 17.4 per cent annually, assuming monthly rebalancing and equal weighting.

But keeping track of a portfolio and making changes monthly might be too much work for some investors. Good news is they can opt for annual rebalancing instead, because it generated average annual gains of 16.9 per cent from the end of 1994 to the end of 2021.

While the Frugal Dividend portfolio posted strong long-term returns, it stumbled from time to time. The second graph shows how far the portfolio fell in downturns, as a fraction of its prior peak, and includes similar monthly data for the S&P/TSX Composite.

The Frugal Dividend portfolio sailed through the collapse of the internet bubble in the early 2000s, largely because it avoided the high-tech darlings of the day, and Nortel in particular.

However, it didn’t offer as much downside protection as the Stable Dividend portfolio in other downturns.

Stable Dividend Portfolio

NameTickerPriceYield (%)Volatility (%)P/E
Hydro OneH-T$34.263.313.120.0
Canadian UtilitiesCU-T$36.904.814.213.6
Rogers SugarRSI-T$6.155.914.517.6
Timbercreek FinancialTF-T$7.808.816.620.4
Royal Bank of CanadRY-T$128.704.016.811.7
Algonquin PowerAQN-T$15.866.216.923.4
Capital PowerCPX-T$48.144.816.919.8
Intact FinancialIFC-T$205.321.917.115.1
Great-West LifecoGWO-T$31.476.217.61.7
Shaw CommunicationsSJR.B-T$34.303.517.820.2
Sun LifeSLF-T$58.004.817.99.2
Thomson ReutersTRI-T$144.851.618.2309.4
Power CorpPOW-T$32.826.018.211.0

Source: Bloomberg, Norman Rothery

For instance, the Frugal Dividend portfolio gave up 35 per cent in the financial crisis of 2008, while the market index plummeted 43 per cent. The portfolio fared worse than the market in the pandemonium of 2020 with a decline of 28 per cent, versus a 25-per-cent drop for the S&P/TSX Composite.

The portfolio is getting pummelled in the current downturn. It fell 18 per cent from its peak through to the end of September, and the index declined 15 per cent. There might be more pain to come in the short term, but buying during downturns has worked well over the long term.

In aggregate, the Frugal Dividend portfolio has a median dividend yield of 4.4 per cent and a median earnings yield of 12.5 per cent. (The median is the point at which half the readings are higher and half are lower.) It’s also worth mentioning that E-L Financial tends to be thinly traded and owns a large stake in Algoma Central, which is the smallest member of the Frugal Dividend portfolio. (I own both.)

With a little luck, the Frugal Dividend’s seeds will generate bountiful returns over the long term. But the short term might be challenging, given the current economic circumstances.

Norman Rothery, PhD, CFA, is the founder of