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Monster movies provide thrills, but most investors prefer something less frightening when it comes to the markets. They don’t want to see their portfolios flailing around like King Kong at the top of the Empire State Building.

For good and bad, the Dividend Monster portfolio takes after the great ape because it climbed skyward over the last 23.25 years with average annual gains of 14.9 per cent. But it’s been faltering since it hit an all-time high last May.

The Dividend Monster picks stocks by starting with the largest 300 on the Toronto Stock Exchange. It scoops out the dividend payers and keeps the half of them with the highest yields. The high-yield stocks are tested for momentum, and equal amounts of the 10 with the highest returns over the prior year are put into the portfolio, which is rebalanced monthly.

Stated alternately, the current portfolio is selected from stocks with market capitalizations of more than $550-million, dividend yields north of 2.78 per cent and returns over the past year of more than 21 per cent. Just keep in mind that these numbers will change as the market ebbs and flows.

You can examine the returns of the Dividend Monster portfolio in the accompanying graph. The portfolio gained an average of 14.9 per cent annually from the end of 1999 through to the end of March, 2023.

In comparison, the overall market, as represented by the S&P/TSX Composite Index, gained an average of 6.6 per cent annually over the same period. (The returns herein are based on data from Bloomberg and include dividend reinvestment but not fund fees, commissions, inflation or other trading frictions.)

Investors who don’t want to refresh their portfolios monthly can still benefit from the approach because quarterly rebalancing produced average annual gains of 14.1 per cent from the end of 1999 to the end of 2022, while the market index advanced by an average of 6.4 per cent a year.

Similarly, rebalancing annually also worked, with average annual gains of 12.5 per cent over the same period.

Momentum has a long history of performing well in many markets, and its winning streak in the United States stretches back before King Kong’s debut in 1933. Unfortunately, momentum also tends to collapse suddenly in downturns. For instance, the Dividend Monster portfolio had a good run in the early part of this century, but it got mauled during the financial crisis of 2008.

The portfolio’s down periods are highlighted in the second graph, which shows how far it fell from its prior peak. As a bonus, the graph also includes data on a 20-stock version of Dividend Monster portfolio, which picks the 20 stocks with the best returns over the prior year instead of the Top 10.

The 20-stock version of the portfolio fared almost as well as its 10-stock sibling with average annual returns of 14.4 per cent from the end of 1999 to the end of March, 2023. It was also about 15-per-cent less volatile than the regular 10-stock portfolio.

In the financial crisis, the Dividend Monster portfolio plunged 52 per cent from its former high in 2008 to its low in 2009, while its 20-stock sibling fell 45 per cent and the market index declined 43 per cent, based on monthly data. (A graph of how the market index fared in past downturns can be found in last October’s Dividend Monster update.)

Adding 10 stocks to the Dividend Monster portfolio helped to cushion the 2008 downturn and the current slump. The 10-stock portfolio tumbled 23 per cent from its high to its low in 2022, while the 20-stock portfolio fell 17 per cent and the market index gave up 14 per cent.

(For the curious, a five-stock version of the portfolio provided slightly smaller returns than its larger siblings and its returns were more volatile.)

Only time will tell whether the portfolio hit its low for the current downturn or there is more to go. But, if investors get lucky, the Dividend Monster will escape King Kong’s fate to enjoy another run higher.

You can find the stocks in the regular 10-stock Dividend Monster portfolio, and the additional 10 stocks in its 20-stock sibling, via this link, which also provides updates to many of the other portfolios I track for the Globe.

Norman Rothery, PhD, CFA, is the founder of

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