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Investors who find winning ways to pick stocks usually rejoice. They might dream of bulging bank accounts, living the high life, or retiring early.

I have similar happy thoughts, but I also like to look for drawbacks and downsides before diving in. Today I’m going to put Canadian dividend stocks under the microscope to see how they measured up in past bullish and bearish periods.

Kenneth French of Dartmouth College calculated the return history of Canadian dividend stocks in one of his many market studies. In this study, Prof. French sorted the Canadian market by dividend yield and put stocks into three portfolios. The high-yield portfolio contains the 30 per cent of stocks with the highest yields. The low-yield portfolio tracks the 30 per cent of stocks with the lowest yields while the no-yield portfolio follows stocks that do not pay dividends. A market portfolio is also formed from all the Canadian stocks in his database. Each portfolio is held for a year before it is refreshed to reflect the then-current yields.

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The return histories of the portfolios are shown in the first accompanying graph, which stretches from the start of 1977 through to the end of 2018. The Canadian stock market gained an average of 10 per cent annually over the period. The high-yield portfolio topped the competition with average annual gains of 13.8 per cent, while the low-yield group trailed with average annual gains of 9.3 per cent. The non-dividend payers performed horribly over the long term with average annual gains of 2.7 per cent.

That’s good news for investors who love stocks with generous dividend yields and it helps to explain the popularity of dividend stocks. But they also suffer from poor periods.

The Upside of Canadian Dividend Stocks

Growth per $1 invested (log scale)

1,000

Market

High yield

Low yield

Zero yield

100

10

1

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: norman

rothery (data:prof.french)

The Upside of Canadian Dividend Stocks

Growth per $1 invested (log scale)

1,000

Market

High yield

Low yield

Zero yield

100

10

1

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: norman

rothery (data:prof.french)

The Upside of Canadian Dividend Stocks

Growth per $1 invested (log scale)

1,000

Market

High yield

Low yield

Zero yield

100

10

1

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: norman rothery (data:prof.french)

To explore the downside, I’m going to focus in on the high-yield portfolio and compare it with the market portfolio. The second graph looks at periods when the high-yield portfolio and the market fell from their prior peaks. (All of the return figures and calculations herein use monthly data. As a result, peak-to-trough declines would be larger when measured using weekly or daily data.)

The downside news is mixed for dividend investors. The high-yield portfolio often fell roughly as much as the market during downturns but it tended to recover a little more quickly. I’ll highlight a couple of notable exceptions.

The Downside of Dividends

Fraction of prior peak

1.00

0.90

0.80

0.70

0.60

Market

High yield

0.50

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

john sopinski/the globe and mail

source: norman rothery (Data: Prof. French)

The Downside of Dividends

Fraction of prior peak

1.00

0.90

0.80

0.70

0.60

Market

High yield

0.50

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

john sopinski/the globe and mail

source: norman rothery (Data: Prof. French)

The Downside of Dividends

Fraction of prior peak

1.00

0.90

0.80

0.70

0.60

Market

High yield

0.50

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

john sopinski/the globe and mail, source: norman rothery (Data: Prof. French)

The high-yield portfolio fared well when the internet bubble burst and Nortel crashed. You can see the impact of the Nortel-led decline in the market’s returns starting in the summer of 2000. But the high-yield portfolio was relatively unfazed because Nortel was in the low-yield group.

Nortel’s decline highlights the risk of owning a concentrated portfolio because it formed a hefty part of the market index at its 2000 peak. It also points to the influence that one giant stock can have when looking at historical return patterns.

The market fared better in some downturns than the high-yield portfolio.

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For instance, the market declined 14 per cent after hitting a peak in 2015 but the high-yield portfolio gave up 24 per cent.

Over all, high-yield stocks provided some downside protection relative the market. But it’s an observation that largely rests on having avoided Nortel’s fall from grace. As a result, it seems unwise to rely on a high-yield portfolio holding up better than the market in the future.

Nonetheless, for income-focused investors, dividend stocks generally retain their allure.

You can find Canadian dividend stocks with generous dividend yields by heading to the online version of this article (tgam.ca/insidethemarket), which contains a table with dozens of potential picks. It highlights common stocks on the TSX that pay dividends, have market capitalizations in excess of $100-million, and share prices north of $1. The highest yielding 30 per cent of the stocks in the list have yields of more than 4.5 per cent. (Wise investors take extra care when it comes to stocks with extraordinarily high yields.)

While Canadian dividend stocks with generous yields have fared well and may continue to do so, it is important to remember they’re still stocks.

Canadian Dividend Stocks by Yield

NameTickerPriceYield (%)PE
Vermilion Energy IncVET-T$19.0514.49
CanWel Building MaterialsCWX-T$5.1710.8326.40
Ensign Energy Services IncESI-T$2.3210.34
ARC Resources LtdARX-T$6.249.6212.48
Freehold Royalties LtdFRU-T$6.699.4260.65
Cardinal Energy LtdCJ-T$1.949.28
Pizza Pizza Royalty CorpPZA-T$9.349.1611.03
Bridgemarq Real Estate ServiceBRE-T$15.058.9725.42
Peyto ExplorationPEY-T$2.778.663.00
Whitecap Resources IncWCP-T$3.958.6615.62
Gamehost IncGH-T$8.208.4112.81
TORC Oil & Gas LtdTOG-T$3.608.3359.13
MCAN Mortgage CorpMKP-T$16.557.739.62
Chesswood Group LtdCHW-T$10.887.7211.10
Rocky Mountain Dealerships IncRME-T$6.367.7021.24
Inter Pipeline LtdIPL-T$22.237.6915.77
Fiera Capital CorpFSZ-T$11.137.55424.96
Alaris Royalty CorpAD-T$21.877.5413.86
Mullen Group LtdMTL-T$8.007.509.89
Western Forest Products IncWEF-T$1.237.32
Diversified Royalty CorpDIV-T$3.127.1326.58
Rogers Sugar IncRSI-T$5.107.0613.11
Timbercreek Financial CorpTF-T$9.807.0414.58
Cineplex IncCGX-T$25.876.9629.93
Acadian Timber CorpADN-T$16.746.93
Wall Financial CorpWFC-T$29.856.706.57
Wajax CorpWJX-T$14.956.698.10
Russel Metals IncRUS-T$22.916.6311.07
Pinnacle Renewable Energy IncPL-T$9.066.6219.91
Firm Capital Mortgage InvestmeFC-T$14.436.4914.15
Secure Energy Services IncSES-T$4.186.4659.20
Polaris Infrastructure IncPIF-T$12.296.4670.98
Atrium Mortgage Investment CorAI-T$13.966.4515.37
TransAlta Renewables IncRNW-T$14.826.3422.00
Medical Facilities CorpDR-T$4.456.296.64
TransGlobe Energy CorpTGL-T$1.486.294.97
Olympia Financial Group IncOLY-T$44.856.1510.32
NFI Group IncNFI-T$27.856.1016.10
Chorus Aviation IncCHR-T$7.906.0811.98
Pason Systems IncPSI-T$12.616.0316.81
Bird Construction IncBDT-T$6.585.9341.79
Enbridge IncENB-T$49.945.9118.43
Capital Power CorpCPX-T$32.575.8915.65
IGM Financial IncIGM-T$38.575.8312.43
Cervus Equipment CorpCERV-T$7.605.7955.15
Transcontinental IncTCL.A-T$15.215.7910.93
PrairieSky Royalty LtdPSK-T$13.565.7534.28
Superior Plus CorpSPB-T$12.525.7530.86
Extendicare IncEXE-T$8.405.71188.97
AGF Management LtdAGF.B-T$5.615.709.08
Keyera CorpKEY-T$33.865.6717.21
Laurentian Bank of CanadaLB-T$46.725.6510.71
Power Financial CorpPWF-T$32.925.5311.12
Corby Spirit and Wine LtdCSW.A-T$15.925.5317.68
Birchcliff Energy LtdBIR-T$1.985.306.23
Exchange Income CorpEIF-T$43.095.2919.20
Gibson Energy IncGEI-T$25.225.2321.77
Ag Growth International IncAFN-T$45.885.2311.55
Husky Energy IncHSE-T$9.605.2112.73
Sienna Senior Living IncSIA-T$18.135.1688.86
GMP Capital IncGMP-T$1.995.03
Power Corp of CanadaPOW-T$32.345.0111.01
Canadian Imperial Bank of CommCM-T$115.175.009.57
Pembina Pipeline CorpPPL-T$48.074.9915.59
Great-West Lifeco IncGWO-T$33.104.99
Information Services CorpISV-T$16.154.9518.35
BCE IncBCE-T$64.214.9418.29
ShawCor LtdSCL-T$12.264.8940.87
AltaGas LtdALA-T$19.964.8113.59
Computer Modelling Group LtdCMG-T$8.334.8026.50
North West Co Inc/TheNWC-T$27.794.7515.59
Intertape Polymer Group IncITP-T$16.464.7412.97
Bank of Nova Scotia/TheBNS-T$76.504.7110.74
TELUS CorpT-T$49.934.6717.52
First National Financial CorpFN-T$43.044.5316.40
Emera IncEMA-T$54.594.4920.45
Kinder Morgan Canada LtdKML-T$14.594.4611.28
TC Energy CorpTRP-T$67.984.4116.45
Northland Power IncNPI-T$27.414.3820.29
Canaccord Genuity Group IncCF-T$4.634.327.30
Shaw Communications IncSJR.B-T$27.504.3119.58
Canadian Utilities LtdCU-T$39.544.2815.06
Exco Technologies LtdXTC-T$8.434.2711.81
Total Energy Services IncTOT-T$5.654.2532.21
Corus Entertainment IncCJR.B-T$5.684.236.76
Sprott IncSII-T$2.844.2335.50
Innergex Renewable Energy IncINE-T$16.904.14108.41
Molson Coors Canada IncTPX.A-T$71.994.14
Stingray Group IncRAY.A-T$6.804.1241.42
Labrador Iron Ore Royalty CorpLIF-T$24.324.117.75
Sleep Country Canada HoldingsZZZ-T$19.074.0912.97
Evertz Technologies LtdET-T$17.684.0718.69
Bank of MontrealBMO-T$101.354.0711.06
Algonquin Power & Utilities CoAQN-T$18.384.0622.32
Canadian Natural Resources LtdCNQ-T$37.034.0516.23
Suncor Energy IncSU-T$41.734.0313.41
First Capital Realty IncFCR-T$21.653.9723.55
Enerflex LtdEFX-T$11.593.976.87
Melcor Developments LtdMRD-T$12.183.947.13
National Bank of CanadaNA-T$69.863.8911.28
Hydro One LtdH-T$24.863.89
Genworth MI Canada IncMIC-T$55.793.8710.90
Absolute Software CorpABT-T$8.283.8627.20
Royal Bank of CanadaRY-T$108.863.8612.35
Clearwater Seafoods IncCLR-T$5.193.8518.05
Toronto-Dominion Bank/TheTD-T$76.983.8511.66
Manulife Financial CorpMFC-T$26.083.8310.60
Tourmaline Oil CorpTOU-T$12.553.8211.92
AirBoss of America CorpBOS-T$7.343.8113.93
Methanex CorpMX-T$50.223.8015.30
Nutrien LtdNTR-T$63.243.7719.30
Leon's Furniture LtdLNF-T$15.103.7111.51
Stelco Holdings IncSTLC-T$10.803.705.81
Sun Life Financial IncSLF-T$61.193.6014.83
Neo Performance Materials IncNEO-T$11.193.5714.22
Fortis Inc/CanadaFTS-T$53.443.5721.17
Uni-Select IncUNS-T$10.453.5410.41
CI Financial CorpCIX-T$21.003.439.46
TerraVest Industries IncTVK-T$11.923.3610.14
Algoma Central CorpALC-T$13.243.3214.16
Finning International IncFTT-T$24.773.3115.00
CES Energy Solutions CorpCEU-T$1.833.2814.08
Atco Ltd/CanadaACO.X-T$49.713.267.63
Waterloo Brewing LtdWBR-T$3.113.2245.27
Savaria CorpSIS-T$14.463.1831.74
Canadian Western BankCWB-T$35.473.1611.45
Rogers Communications IncRCI.B-T$63.473.1514.79
Aecon Group IncARE-T$18.423.1516.34
AltaGas Canada IncACI-T$33.433.11
Calian Group LtdCGY-T$36.503.0718.14
K-Bro Linen IncKBL-T$39.433.0442.38
Restaurant Brands InternationaQSR-T$87.313.0322.85
Madison Pacific Properties IncMPC-T$3.532.976.14
AutoCanada IncACQ-T$13.502.96
Canfor Pulp Products IncCFX-T$8.502.94212.50
Westshore Terminals InvestmentWTE-T$21.982.9110.95
Canadian Tire Corp LtdCTC.A-T$156.432.9114.53
Quarterhill IncQTRH-T$1.722.9165.37
Boralex IncBLX-T$23.962.75
iA Financial Corp IncIAG-T$67.482.6711.40
Imperial Oil LtdIMO-T$33.022.679.44
Magna International IncMG-T$73.702.628.98
Magellan Aerospace CorpMAL-T$16.092.6110.82
Parkland Fuel CorpPKI-T$46.132.5917.93
Tricon Capital Group IncTCN-T$10.952.5612.85
Maple Leaf Foods IncMFI-T$22.922.5320.56
Premium Brands Holdings CorpPBH-T$83.372.5230.68
Urbana CorpURB-T$2.792.516.34
Cascades IncCAS-T$12.792.5024.70
Morneau Shepell IncMSI-T$31.702.4648.94
TFI International IncTFII-T$43.082.4112.75
ECN Capital CorpECN-T$4.312.32141.67
TMX Group LtdX-T$113.922.3224.00
BMTC Group IncGBT-T$12.202.3012.37
Intact Financial CorpIFC-T$134.902.2532.16
Hardwoods Distribution IncHDI-T$15.252.239.55
Recipe Unlimited CorpRECP-T$20.152.2319.12
Fairfax Financial Holdings LtdFFH-T$599.582.2224.49
Guardian Capital Group LtdGCG.A-T$27.472.1837.06
High Liner Foods IncHLF-T$9.352.1415.59
Vecima Networks IncVCM-T$10.352.13
Cenovus Energy IncCVE-T$11.812.128.41
Norbord IncOSB-T$38.472.08not
meaningful
North American Palladium LtdPDL-T$19.672.036.38
Thomson Reuters CorpTRI-T$94.922.01159.55
George Weston LtdWN-T$105.082.0017.40
Gildan Activewear IncGIL-T$35.831.9816.63
Cogeco Communications IncCCA-T$118.741.9516.88
goeasy LtdGSY-T$64.201.9313.60
Ritchie Bros Auctioneers IncRBA-T$56.001.8935.46
Encana CorpECA-T$5.261.895.16
TransAlta CorpTA-T$8.711.84
WestJet Airlines LtdWJA-T$30.701.8215.75
Altius Minerals CorpALS-T$11.011.82111.81
Loblaw Cos LtdL-T$70.261.7922.56
New Look Vision Group IncBCI-T$33.601.7929.86
Cogeco IncCGO-T$106.721.7822.57
Andrew Peller LtdADW.A-T$12.101.7819.68
Canadian National Railway CoCNR-T$122.651.7520.61
WSP Global IncWSP-T$86.081.7427.76
Velan IncVLN-T$6.951.73
Osisko Gold Royalties LtdOR-T$11.791.70243.84
Saputo IncSAP-T$40.141.6924.71
Stantec IncSTN-T$34.751.6722.37
Altus Group Ltd/CanadaAIF-T$35.981.6798.20
Badger Daylighting LtdBAD-T$34.911.6318.97
Lundin Mining CorpLUN-T$7.401.6342.26
Open Text CorpOTEX-T$57.771.6035.27
Toromont Industries LtdTIH-T$69.001.5722.96
Element Fleet Management CorpEFN-T$11.591.5517.93
Park Lawn CorpPLC-T$29.391.5537.89
Jamieson Wellness IncJWEL-T$25.941.5433.83
Martinrea International IncMRE-T$11.791.535.03
Enerplus CorpERF-T$7.941.516.51
Lassonde Industries IncLAS.A-T$162.021.4719.05
Stella-Jones IncSJ-T$38.251.4616.85
Metro Inc/CNMRU-T$55.241.4520.61
VersaBankVB-T$7.091.418.16
Empire Co LtdEMP.A-T$34.181.4022.96
TECSYS IncTCS-T$15.901.38
Quebecor IncQBR.B-T$33.471.3416.23
West Fraser Timber Co LtdWFT-T$60.271.33
Wheaton Precious Metals CorpWPM-T$36.901.2958.99
CAE IncCAE-T$35.201.2527.90
Equitable Group IncEQB-T$113.991.2310.29
MTY Food Group IncMTY-T$54.501.2112.49
CCL Industries IncCCL.B-T$56.921.1920.45
Barrick Gold CorpABX-T$22.641.1744.19
Agnico Eagle Mines LtdAEM-T$79.831.1680.63
Yamana Gold IncYRI-T$4.701.1323.12
Canacol Energy LtdCNE-T$4.641.1255.42
Brookfield Asset Management InBAM.A-T$75.951.1211.53
North American Construction GrNOA-T$14.471.1112.92
Enghouse Systems LtdENGH-T$39.881.1033.21
B2Gold CorpBTO-T$4.801.1045.00
HLS Therapeutics IncHLS-T$18.641.07
Linamar CorpLNR-T$45.421.065.88
Canadian Pacific Railway LtdCP-T$315.961.0519.43
Franco-Nevada CorpFNV-T$130.921.0165.18
Cargojet IncCJT-T$97.870.9661.69
Richelieu Hardware LtdRCH-T$27.020.9423.11
Teck Resources LtdTECK.B-T$21.400.936.12
Maverix Metals IncMMX-T$5.900.9099.05
DREAM Unlimited CorpDRM-T$11.290.898.53
Logistec CorpLGT.A-T$43.600.8624.26
Pollard Banknote LtdPBL-T$19.940.8028.40
Crescent Point Energy CorpCPG-T$5.070.7916.37
GoldMoney IncXAU-T$2.000.766.12
Pan American Silver CorpPAAS-T$24.760.75155.91
Alamos Gold IncAGI-T$7.360.72443.21
E-L Financial Corp LtdELF-T$738.750.68
FirstService CorpFSV-T$121.960.65
BRP IncDOO-T$62.000.6520.29
Cameco CorpCCO-T$12.500.6433.53
TWC Enterprises LtdTWC-T$13.440.6025.96
Alimentation Couche-Tard IncATD.B-T$42.060.5918.64
Hudson's Bay CoHBC-T$9.080.55
Silvercorp Metals IncSVM-T$6.370.5222.57
Onex CorpONEX-T$81.280.493.14
Hudbay Minerals IncHBM-T$4.570.44
Constellation Software Inc/CanCSU-T$1,362.950.3957.48
Dollarama IncDOL-T$47.210.3727.31
Kirkland Lake Gold LtdKL-T$64.630.3321.01
SNC-Lavalin Group IncSNC-T$25.040.32
Morguard CorpMRC-T$202.170.3012.80
Winpak LtdWPK-T$46.120.2619.69
Clairvest Group IncCVG-T$49.800.2010.37
Colliers International Group ICIGI-T$93.660.1421.16
First Quantum Minerals LtdFM-T$12.020.0817.70

Source: Bloomberg

Figures as of Nov. 19, 2019

Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.

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