Stingy Investor Contact - Subscribe - Login
  Home | Articles | Links | SNW
 
The Frugal Dividend portfolio

We give thanks and feast every year when the harvest comes in. But autumn is also traditionally a good time to buy stocks and plant investment seeds for the years to come.

The Frugal Dividend portfolio offers a crop of stable dividend payers trading at bargain prices. It's the value investing variant of the Stable Dividend portfolio, which I highlighted in September.

The process begins with the largest 300 common stocks on the TSX (as measured by market capitalization). All of the large Canadian stocks are put into an equally weighted portfolio that's rebalanced monthly. It climbed by an average of 9.9 per cent annually from the end of January, 1995, through to the end of September, 2022. In comparison, the S&P/TSX Composite Index, a reasonable proxy for the Canadian market, gained an average of 8.3 per cent over the same period. (All the returns herein are based on data from Bloomberg and include dividend reinvestment, but not inflation, taxes or trading frictions.)

But many Canadian investors prefer stocks that pay dividends. The Basic Dividend portfolio keeps the roughly 200 stocks that pay dividends from the original 300 stock portfolio. This dividend portfolio gained an average of 11.8 per cent annually over the same period, assuming equal weighting and monthly rebalancing. The return advantage helps to explain why Canadians are fond of their dividends.

The Stable Dividend portfolio takes the Basic Dividend portfolio and goes another step by focusing on the 20 stocks with the lowest volatility (over the prior 260 days). The portfolio gained an average of 14.9 per cent over the same period, assuming monthly rebalancing and equal weighting.

The Frugal Dividend portfolio marries low volatility with value. It starts with the roughly 200 stocks in the Basic Dividend portfolio, narrows in on the 50 with the lowest volatility (over the prior 260 days) and then picks the 10 with the lowest positive price-to-earnings ratios.

You can see the spectacular results in the accompanying graph. The Frugal Dividend portfolio gained an average of 17.4 per cent annually, assuming monthly rebalancing and equal weighting.

Frugal Dividend's upside gains

But keeping track of a portfolio and making changes monthly might be too much work for some investors. Good news is they can opt for annual rebalancing instead, because it generated average annual gains of 16.9 per cent from the end of 1994 to the end of 2021.

While the Frugal Dividend portfolio posted strong long-term returns, it stumbled from time to time. The second graph shows how far the portfolio fell in downturns, as a fraction of its prior peak, and includes similar monthly data for the S&P/TSX Composite.

Downside of the Frugal Dividend portfolio

The Frugal Dividend portfolio sailed through the collapse of the internet bubble in the early 2000s, largely because it avoided the high-tech darlings of the day, and Nortel in particular.

However, it didn't offer as much downside protection as the Stable Dividend portfolio in other downturns.

For instance, the Frugal Dividend portfolio gave up 35 per cent in the financial crisis of 2008, while the market index plummeted 43 per cent. The portfolio fared worse than the market in the pandemonium of 2020 with a decline of 28 per cent, versus a 25-per-cent drop for the S&P/TSX Composite.

The portfolio is getting pummelled in the current downturn. It fell 18 per cent from its peak through to the end of September, and the index declined 15 per cent. There might be more pain to come in the short term, but buying during downturns has worked well over the long term.

In aggregate, the Frugal Dividend portfolio has a median dividend yield of 4.4 per cent and a median earnings yield of 12.5 per cent. (The median is the point at which half the readings are higher and half are lower.) It's also worth mentioning that E-L Financial tends to be thinly traded and owns a large stake in Algoma Central, which is the smallest member of the Frugal Dividend portfolio. (I own both.)

With a little luck, the Frugal Dividend's seeds will generate bountiful returns over the long term. But the short term might be challenging, given the current economic circumstances.

Frugal Dividend portfolio: Algoma Central,Bank of Montreal, Bank of Nova Scotia, CIBC, Cogeco, Cogeco Communications, E-L Financial, Great-West Lifeco, National Bank, Sun Life

First published in the Globe and Mail, October 11 2022.

 
Globe & Mail Articles
 250 Megastars for 2024
 Extreme yields
 The easy way
 Smaller stable dividend
 250 Megastars for 2023
 Champagne portfolio
 Screaming Value
 Blended momentum
 Dividend monster
 Frugal dividend
 Stable dividend
 Speads and recessions
 TSX 60 for value investors
 Looking at 10-year returns
 Watching for a bottom
 Oh, bother!
 Low P/E DJIA
 Indexing advice
 Media-shy stocks
 Curse of size
 Market uncertainty
 Be even lazier
 Scary beats safe
 Small, illiquid, value
 Use the numbers
 What value is good value?
 Sculpt for value
 Value vs CAPE
 Graham Rules
 CAPE vs PeakE
 Top value ratio
 Low Beta
 Value and dividends
 Walter Schloss
 Try unloved AIG
 Why I'm a value investor
 New world of ETFs
 Low P/Es possible
 10 yielders
 Be happier
 Long-Short
 Dividend Downside
 Shiller's P/E
 Copycat investing
 Cashing in on class
 Index roulette
 Theory collides
 Diving too deep
 3 retirement villains
 Scourge of inflation
 Economic omens
 Analyst Expectations
 Value stock scarcity
 It's all in the index
 How to pick good funds
 Low Beta Wins
 Hunt for dividend stocks
 Think garage sale

MoneySaver Articles
 2 Graham Stocks for 2018
 2 Stingy Stocks for 2017
 2 Graham Stocks for 2017
 3 Stingy Stocks for 2016
 5 Graham Stocks for 2016
 3 Stingy Stocks for 2015
 3 Graham Stocks for 2015
 3 Stingy Stocks for 2014
 4 Graham Stocks for 2014
 8 Stingy Stocks for 2013
 6 Graham Stocks for 2013
 9 Stingy Stocks for 2012
 8 Graham Stocks for 2012
 Simple Way 2011
 5 Stingy Stocks for 2011
 7 Graham Stocks for 2011
 Simple Way 2010
 5 Stingy Stocks for 2010
 8 Graham Stocks for 2010
 Simple Way 2009
 Timing Temptation
 19 Stingy Stocks for 2009
 4 Graham Stocks for 2009
 Simple Way 2008
 Active at Passive Prices
 Unbundling ETFs 2008
 5 Stingy Stocks for 2008
 5 Graham Stocks for 2008
 Is your index too active?
 Graham's Simple Way
 Canadian Graham Stocks
 5 Stingy Stocks for 2007
 8 Graham Stocks for 2007
 Top SPPs
 The Simple Way
 A hole in your IPO?
 Monkey Business
 8 Stingy Stocks for 2006
 Graham Stock Gainers
 Blue-Chip Blues
 Are Dividends Safe?
 SPPs for 2005
 Graham's Simplest Way
 Selling Graham Stocks
 RRSP Money Market Funds
 Stingy Stocks for 2005
 High Performance Graham
 Intelligent Indexing
 Unbundling Canadian ETFs
 A history of yield
 A Dynamic Duo
 Canadian Graham Stock
 Dividends at Risk
 Thrifty Value Stocks
 Stocks in Short Supply
 The New Dividend
 Hunting Goodwill
 SPPs for 2003
 RRSP: don't panic
 Desirable Dividends
 Stingy Selections 2003
 10 Graham Picks
 Growth Eh?
 Timing Disaster
 Dangerous Diversification
 The Coffee Can Portfolio
 Down with the dogs
 Stingy Selections
 Frugal Funds
 Graham Revisited
 Just Spend It
 Ticker Temptation
 Stock Mortality
 Focus on Fees
 SPPs for the Long Term
 Seeking Solid Stocks
 Relative Strength
 The VR Approach
 The Irrational Investor
 Value Investing

Old MS Articles
 Cdn Top 200 2018
 Cdn Top 200 2017
 Cdn Top 200 2016
 Cdn Top 200 2015
 Cdn Top 200 2014
 Cdn Top 200 2013
 Cdn Top 200 2012
 Cdn Top 200 2011
 Cdn Top 200 2010
 Cdn Top 200 2009
 Cdn Top 200 2008
 Cdn Top 200 2007
 Cdn Top 200 2006
 Cdn Top 200 2005
 US Top 500 2018
 US Top 500 2017
 US Top 500 2016
 US Top 500 2015
 US Top 500 2014
 US Top 500 2013
 US Top 500 2012
 US Top 500 2011
 US Top 500 2010
 US Top 500 2009
 US Top 500 2008
 US Top 500 2007
 US Top 1000 2006
 Dividends 100 2017
 Dividends 100 2016
 Retirement 100 2015
 Retirement 100 2014
 Retirement 100 2013
 Retirement 100 2012
 Retirement 100 2011
 Retirement 100 2010
 Income 100 2009
 Income 100 2008
 Income 100 2007
 Top Trusts 2006
 Top Trusts 2005
 Hot Potato
 Buffett Buys
 FB IPO
 Stocks that pay
 Value in the S&P500
 Where to invest $100k
 Where to invest $10k
 Summer Simple Way
 A crystal ball for stocks?
 Cheap & safe
 Risky business
 Dividend investing
 Value investing
 Momentum investing
 Low P/E P/B
 Dividends
 Dividend growers
 Graham's prescription
 The case for optimism
 Wicked investments
 Simply spectacular
 Small stocks, big profits
 Value that sizzles
 So simple it works
 No assembly required
 Investing by the book
 Invest like the masters
 A simple way to get rich
 Stocks for cannibals
 Car bites dogs
 So easy, so profitable
 Dogs of the Dow
 Money for nothing
 Yield of dreams
 Return of the master

Advisor's Edge Articles
 Passive Rebundling
 Doing the math

Flip Books



 
About Us | Legal | Contact Us
Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...