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Winter has spread across the land and hibernating bears are dreaming of spring and better times.

Many dividend investors also like to hibernate after buying quality stocks while dreaming of generous returns.

The Stable Dividend portfolio has been good to dividend hibernators and I use a variant of it to test a variety of adjustments that might be intuitive to dividend investors.

Today, the basic Stable Dividend portfolio starts with the largest 200 dividend-paying common stocks on the Toronto Stock Exchange. The portfolio then narrows in on the 20 stocks with the lowest volatility over the prior 260 days and buys an equal-dollar amount of each one.

The basic portfolio fared well with an average annual return of 12.9 per cent over the 25 years through to the end of 2023. In comparison, the market index (as represented by the S&P/TSX Composite Index) climbed by an average of 7.5 per cent annually over the same period. (The returns herein reflect monthly data from Bloomberg and include dividend reinvestment, but not fund fees, commissions or other trading costs. The portfolios are all rebalanced monthly and equally weighted.)

The basic portfolio typically contains a selection of well-known stocks ranging from big banks and insurance companies to utilities and grocery stores. The companies themselves usually have reasonably steady businesses – in comparison to other stocks.

I start tinkering by taking the basic portfolio and eliminating stocks that did not pay dividends in each of the prior four quarters before selecting the 20 low-volatility stocks. The idea being to stick to stocks that pay dividends monthly, or quarterly, in the hope they’ll fare better.

Alas, the portfolio containing only frequent dividend payers gained an average of 11.9 per cent annually over the 25 years to the end of 2023, and it was slightly more volatile than the basic portfolio. In other words, focusing only on monthly or quarterly dividend payers didn’t work out.

Going back to the drawing board, my next test removes stocks with extremely high yields from the basic portfolio. That is, I start with the 200 largest dividend stocks and remove the five with the very highest yields before picking 20 low volatility stocks for the portfolio. The idea is to avoid stocks that might be on the cusp of cutting – or eliminating – their dividends.

In this case, avoiding extreme yields reduced the portfolio’s returns slightly to an average of 12.7 per cent annually over the 25 years to the end of 2023. The minor change suggests the basic portfolio’s low-volatility requirement already does a good job of avoiding the riskiest stocks.

Undaunted, I started once more with the 200 dividend payers and only kept those with at least five years’ worth of trading history before picking the 20 low volatility stocks. The idea being to stick to well-seasoned companies with multiyear track records.

The resulting portfolio only gained an average of 12 per cent annually over the 25 years. A similar portfolio that required at least two years’ worth of trading history fared a bit better with a 12.7 per cent average annual return.

Like Sisyphus, I began anew with the largest 200 dividend payers but this time stuck to stocks with prices of more than $5 per share (in an effort to avoid penny stocks) before picking the 20 low volatility stocks. But the resulting portfolio gained an average of 12.9 per cent annually, which was identical to the basic portfolio’s performance. Once again, the low volatility requirement had already excluded the penny stocks.

On the other hand, moving the minimum price up to $10 per share resulted in a reduced average annual return of 12.6 per cent. The portfolio fared even worse with an average annual return of 11.9 per cent when the minimum price climbed to $20 per share.

Similarly, starting with a pool of the largest 100 dividend payers and then picking the 20 stocks with the lowest volatility depressed returns to an average of 11.2 per cent annually over the 25 years to the end of 2023.

As you can tell, adding a requirement that helps, rather than hurts, is often easier said than done. It’s one reason why I’ve gravitated to simpler methods over the years, which can do surprisingly well over the long term. These days I’m happy to buy low-volatility dividend stocks while relaxing, with hot cocoa in hand, to watch the winter weather blow by.

You can find the stocks in the Stable Dividend portfolio via this link, which also provides updates to many of the other portfolios I track for The Globe and Mail.

Norman Rothery, PhD, CFA, is the founder of

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