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As the harvest starts to come in and Thanksgiving is fast approaching, Canadian investors are tightening their belts because stocks wilted this summer.

The recent tumble inspired me to check in on the Stable Dividend strategy to see how it’s holding up in these uncertain times. It offers a conservative approach to picking stocks that focuses on Canadian dividend payers that are steady performers.

The approach starts out with the largest 300 common stocks on the TSX (as measured by market capitalization). It puts them into an equally-weighted portfolio and rebalances the portfolio monthly.

The portfolio of 300 stocks climbed by an average of 9.2 per cent from the end of 1993 through to the end of August, 2022. By way of comparison, the S&P/TSX Composite Index grew by an average of 8 per cent annually over the same period. (All of the returns herein are based on data from Bloomberg and include dividend reinvestment, but not inflation, taxes or trading frictions.)

The next step is to narrow in on dividend-paying stocks from within the 300-stock portfolio. Doing so usually gets the group down to about 200 dividend payers. The equally-weighted portfolio of dividend stocks, rebalanced monthly, gained an average of 11.3 per cent over the same period. Investors got a big boost by sticking to dividend stocks.

That brings me to the Stable Dividend portfolio. It picks 20 stocks from the dividend-paying portfolio that were the least volatile over the preceding 260 days. That is, their prices varied the least compared to other dividend stocks in recent months. The hope is that they’ll continue to offer a relatively smooth ride in the future.

The accompanying graph shows the growth trajectory of the Stable Dividend portfolio, which puts an equal amount of money in each of the 20 stocks and is rebalanced monthly. The portfolio gained an average of 14.5 per cent annually from the end of 1993 through August, 2022.

It’s worth pointing out that rebalancing the portfolio less often also produced strong gains. The Stable Dividend portfolio climbed by an average of 13.6 per cent annually from the end of 1993 to the end of 2021 when it was rebalanced once a year, rather than once a month. By comparison, it beat the S&P/TSX Composite by an average of 5.2 percentage points a year over the period.

Now, I’d like to turn your attention to the second graph, which shows the performance of the Stable Dividend portfolio during hard times. It highlights how far the portfolio fell, as a fraction of its prior peak, in downturns and includes similar data for the index.

The S&P/TSX Composite fared poorly in 2002 and 2009, when it declined by more than 40 per cent from its prior peak, based on monthly data. On the other hand, the Stable Dividend portfolio sailed through the internet crash (it didn’t hold Nortel) and fared better than the index in 2009. This year, it’s down about 4 per cent from its recent highs through to the end of August, versus an 11-per-cent fall for the index.

While the Stable Dividend portfolio does not offer perfect protection against downturns, it has fared better than the index on most occasions. It also tends to hold utilities, telecoms and other seasoned firms with generous dividend yields that are likely to survive all but the worst of calamities. That said, disappointments from individual stocks should be expected to occur from time to time.

You can examine the list of stocks that pass the Stable Dividend test in the accompanying table. For what it’s worth, I own about half of them and have done so for a long time.

The Stable Dividend Portfolio

Hydro OneH-T34.943.2%13.0
Canadian UtilitiesCU-T40.234.4%13.2
Rogers SugarRSI-T6.205.8%14.7
Algonquin PowerAQN-T17.125.7%15.7
Timbercreek FinancialTF-T7.998.6%16.2
Capital PowerCPX-T51.134.5%16.2
Intact FinancialIFC-T200.932.0%16.5
Royal BankRY-T127.254.0%16.5
Great-West LifecoGWO-T31.186.3%17.0
Power CorpPOW-T33.855.8%17.6
Sun Life FinancialSLF-T57.324.8%17.6
TMX GroupX-T130.262.5%17.7

Source: Bloomberg, September 20, Volatility has been annualized.

The Stable Dividend portfolio has an average dividend yield of 4.8 per cent and an average earnings yield of 8.6 per cent. As a result, the dividends are generally well-supported by earnings. It’s also worth pointing out that Extendicare, Rogers Sugar and Timbercreek have market capitalizations of less than $1-billion, which might make them too small for some investors.

I’ve been thankful for the Stable Dividend stocks during this year’s downturn. With a little luck, the portfolio will continue to offer a feast of returns to investors over the long term.

Norman Rothery, PhD, CFA, is the founder of

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