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Speculators are glued to their trading screens as 2020 slides into the fourth quarter. It’s been a remarkable year with the COVID crash, a big recovery and the spectre of a second wave of the coronavirus moving in.

But if you dozed off last September and woke up only recently – like a modern day Rip Van Winkle – then the markets wouldn’t look too bad. The Canadian stock market is down a bit from where it was at the same time last year – not including dividends – and the U.S. stock market is up nicely, notwithstanding this week’s selloff.

Many speculators trade frequently, but investors should focus on the long term rather than on the short term. Smart investors like to buy and hold for very long periods while their firms grow and pay dividends.

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Ask seasoned investors about their best purchases and they’ll often point to big gains from stocks they held for decades rather than from those they held for months or years. More than a few will point to the dividends they’re getting from long-held stocks that are now comparable to the cost of buying the stocks in the first place.

Such a sleepy approach works well when it comes to Canadian dividend stocks. The idea is to buy stocks with generous yields to build a diversified portfolio in a low-cost manner.

Employing a sleepy strategy is practical in Canada because of the relatively small size of our market. The TSX has perhaps 100 to 200 stocks of reasonable size while the S&P/TSX 60 index tracks 60 of the largest of them.

Investors can get exposure to the S&P/TSX 60 via the iShares S&P/TSX 60 Index exchange-traded fund (XIU) at an annual cost (or management expense ratio) of 0.18 per cent of assets. It’s a reasonable option for passive index investors.

But dividend investors with moderately sized portfolios can cut out the annual fee and better customize their holdings by buying stocks directly. They might start with 20 dividend-paying stocks that offer generous yields and then add more as the dividends roll in, or their savings grow, over the years.

Practically speaking, a $100,000 portfolio can be split 20 ways with each investment being worth about $5,000. The set-up cost from commissions would amount to $200 at $10 a trade, which represents a one-time fee of 0.2 per cent of assets. While such a portfolio would be more complicated to maintain over time than an index fund, it can reduce costs over the very long term. It also offers the possibility of outperforming the index.

I recently highlighted research from professor Kenneth French at Dartmouth College on the returns of Canadian dividend stocks, and they’ve been superb in the past. Canadian stocks with the highest 30 per cent of yields gained an average of 14.1 per cent from the start of 1977 through to the start of 2020, while the market gained 10.2 per cent over the same period.

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As it happens, a sleepy portfolio could be formed from the 30 per cent of stocks in the S&P/TSX 60 with the highest yields by buying 18 firms, which is rather close to the 20 stocks I suggested previously.

For peace of mind, I’d personally pick stocks with generous yields while avoiding those with extreme yields. As a result, I’d cut out the top yielder from the current list. (Risk-averse investors might remove a few more.) I’d also gravitate to stocks with at least some earnings over the past 12 months.

The sleepy dividend portfolio

CompanyTickerRecent price ($)Earnings yield (%)Dividend yield (%)
Pembina PipelinePPL-T29.556.08.5
Cdn. Natural Res.CNQ-T22.090.17.7
Power Corp.POW-T26.5610.16.7
Bank of Nova ScotiaBNS-T54.5810.36.6
BCE Inc.BCE-T54.874.96.1
Manulife FinancialMFC-T18.5310.56.0
Bank of MontrealBMO-T79.178.85.4
TC EnergyTRP-T59.517.65.4
TD BankTD-T60.808.55.2
Telus Corp.T-T23.265.05.0
Shaw Comm.SJR-B-T24.015.45.0
Royal BankRY-T94.358.24.6
Emera Inc.EMA-T53.886.34.5
Nutrien Ltd.NTR-T53.293.54.4
Algonquin PowerAQN-T18.616.84.4
National BankNA-T68.318.84.2
Sun Life FinancialSLF-T53.727.34.1
Rogers Comm.RCI-B-T51.316.43.9

Data as of Sept. 21. Sources: S&P Capital IQ;; company filings

The accompanying table highlights 20 stocks with positive earnings and generous (but not the most extreme) yields in the S&P/TSX 60. The 20-stock sleepy portfolio currently offers an average dividend yield of 5.6 per cent and an average earnings yield of 6.8 per cent.

The sleepy approach to dividend investing holds a great deal of appeal.

I’ve been doing something similar with a part of my personal portfolio for a long time to good effect. (I own many of the stocks shown in the table.) Let us hope the approach will allow dividend investors to sleep well over the years while generating generous returns along the way.

Norman Rothery, PhD, CFA, is the founder of

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