June brings with it youthful dreams of riding roller coasters all day long.
While the metal giants are grand for kids, investors might turn instead to the markets for a wild ride. They can hop on the Dividend Monster portfolio, which seeks out dividend stocks on the upswing.
The portfolio enjoyed soaring returns with an average annual growth rate of 16.6 per cent over the 26 years through to the end of April, 2026. It beat the Canadian stock market over the period, as tracked by the S&P/TSX Composite Index, which climbed at an average annual rate of 7.9 per cent.
(The returns herein are based on backtests using monthly data from Bloomberg. They include dividend reinvestment but not fund fees, taxes, commissions or other trading costs. The portfolios are equally weighted and rebalanced monthly.)
The Dividend Monster portfolio picks stocks by starting with the largest 300 on the Toronto Stock Exchange by market capitalization. It then focuses on the 50 per cent of dividend payers with the highest dividend yields, which narrowed the list from 300 to 97 stocks this week. It then applies a momentum test and buys the 10 stocks with the highest returns over the prior year.
In recent times, the portfolio gained a whopping 43 per cent over the 12 months to the end of April, 2026. Mind you, the market also fared well with gains of 40 per cent. It’s been an unusually good period for the Dividend Monster portfolio and Canadian stocks more generally.
While the portfolio’s gains are grand, the urge to tinker with it is irresistible. This week we look at modifying the middle step of the monster method to include dividend stocks with lower yields.
But first, it’s useful to take a step back to the dividend portfolio formed from the 50 per cent of dividend payers with the highest yields. While it didn’t fare as well as the Dividend Monster portfolio because it lacks the momentum test, the dividend portfolio beat the market with average gains of 12.7 per cent annually over the 26 years to the end of April, 2026.
Two additional dividend portfolios track either the 60 or 75 per cent of dividend stocks with the highest yields (instead of the top 50 per cent.) They gained an annual average of 12.7 and 12.6 per cent, respectively, over the same 26 years. Expanding the list of dividend payers resulted in similar returns, suggesting that an expansion using the full Dividend Monster method might be advantageous.
Two variants of the Dividend Monster were created with the large, and larger, variants starting with the largest 300 stocks on the TSX and then selecting the top 60 and top 75 per cent of dividend stocks with the highest yields, respectively, before each buys the 10 with the highest returns over the prior year.
The large variant climbed at an average annual rate of 16.7 per cent over the 26 years to the end of April, 2026, which is just a touch better than the original Dividend Monster portfolio. On the other hand, the larger variant advanced at a rate of 16.3 per cent annually. (The weaker results of the later were not surprising because an “all-dividend” version of the Dividend Monster was previously explored and the original outperformed it.)
It is important to note that the large variant’s returns lagged those of the original Dividend Monster for much of the past 26 years and they only caught up in recent times. Overall, expanding the method to include lower-yielding stocks didn’t lead to monstrously different results.
Before taking a ride on the Dividend Monster, know that the portfolio was roughly 22 per cent more volatile than the market index over the 26 years and it suffered from some big ups and downs along the way – as did its variants.
For instance, the financial crisis of 2008-09 hit the portfolios hard with the Dividend Monster, and its large and larger variants, falling by 52, 53, and 56 per cent, respectively, from their former highs. The market index held up better with a decline of 43 per cent.
On the other hand, all three portfolios largely avoided the market index’s plunge in the early 2000s after the internet bubble burst.
It’ll be interesting to see how the Dividend Monster fares in the future. But investors who hop on should be prepared for a wild ride.
Details on the stocks in the Dividend Monster portfolio and the others regularly followed at The Globe and Mail can be found via this link.
Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.