The world is marinating in a sea of alarming news, which makes the markets appear to be unusually risky.
Investors seeking a little stability might think about adopting the Canadian Stable Dividend portfolio. It focuses on low-volatility stocks that tend to be more stable than their peers. It’s an approach that has resisted market crashes in the past while generating generous returns along the way.
The Stable Dividend portfolio climbed at an average annual rate of 14.4 per cent over the 26 years through to the end of 2025 when rebalanced monthly. It handily beat the Canadian stock market, as represented by the S&P/TSX Composite Index, which advanced at an average annual rate of 8.1 per cent over the same period. (The returns herein are based on backtests using data from Bloomberg. They include dividend reinvestment but not fund fees, taxes, commissions or other trading costs. The portfolios are equally weighted.)
The Stable Dividend portfolio starts its search for good stocks with the largest 300 on the Toronto Stock Exchange. It then buys an equal-dollar amount of the 20 dividend payers with the lowest volatilities over the prior 260 days.
The portfolio posted strong returns when rebalanced monthly and it also fared well when rebalanced annually with average annual gains of 12.3 per cent over the 26 years to the end of 2025. Either way, the portfolio was less volatile than the market index over the period and, as you’ll soon see, performed better in market crashes.
The original portfolio can also be split into two variants that cater to income investors on the one hand or those who prefer capital gains on the other. The high-yield portfolio is composed of the 10 stocks in the original Stable Dividend portfolio with the highest dividend yields while the low-yield portfolio snaps up the other 10.
Currently, the 10 stocks in the high-yield portfolio have an average yield of 4.8 per cent, the 20 stocks in the original portfolio provide an average yield of 3.6 per cent, and the 10 stocks in the low-yield portfolio enjoy an average yield of 2.4 per cent.
The returns for both the high- and low-yield portfolios happen to be similar to the original portfolio when using the same rebalancing frequency. The high-yield portfolio climbed at an average annual rate of 14.4 per cent when rebalanced monthly and 12.2 per cent when rebalanced annually over the 26 years to the end of 2025. The low-yield portfolio grew at an average annual rate of 14.2 per cent when rebalanced monthly and 12.2 when rebalanced annually over the same period.
You can see the return history of the three monthly-rebalanced portfolios, and the market index, in the accompanying graph. You’ll notice that there were periods when the high-yield portfolio outperformed. As a result, investors shouldn’t expect the portfolios to provide similar returns all of the time.
The second graph shows how far the high- and low-yield portfolios fell from their former highs during downturns. (The original portfolio and market index are excluded for clarity.)
The high-yield portfolio generally suffered from more severe drops during hard times than the low-yield portfolio. But all of the portfolios managed to basically avoid the market crash in the early 2000s when the market index fell 43 per cent after the dot-com bubble burst.
The worst period for the portfolios came during the financial crisis of 2008-09 when the original portfolio fell 22 per cent from its prior highs. The low-yield portfolio did a bit better with a decline of 21 per cent while the high-yield portfolio tumbled 26 per cent. The market index dropped a much more alarming 43 per cent (based on monthly data).
The sudden cash during the COVID-19 pandemic was the second-worst showing for the Stable Dividend portfolio. It fell 18 per cent in 2020 but did a touch better than the market index’s decline of 22 per cent. The high-yield portfolio trailed with a drop of 25 per cent while the low-yield portfolio held up better with a mild correction of 11 per cent.
While the portfolios generally suffered from less severe crashes than the market index, nervous investors would likely have preferred the low-yield portfolio over the period because it offered a slightly smoother ride and very similar returns to the other portfolios.
I’ve high hopes the Stable Dividend, and associated portfolios will continue to fare well over the long term. But there are – of course – no guarantees when it comes to the markets. After all, the world seems to be in an unusual state these days.
Details on the stocks in the Stable Dividend portfolio and the others I follow for The Globe and Mail can be found via this link.
Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.