The Frugal Dividend portfolio has recently fared well despite the U.S. tariff war.Evan Buhler/The Canadian Press
Summer storms rolled through Toronto last week and took down part of the power grid, which provided an extra bit of uncertainty for those of us trying to string a few words together in the dark.
But disasters come in all shapes and sizes in both life and the stock market, with the latter being a panicky place at the best of times. It’s one reason why some investors seek out relatively stable stocks, like those in the Frugal Dividend portfolio.
The Frugal Dividend portfolio buys Canadian dividend stocks with relatively consistent price histories that trade at bargain levels. The combination worked well because the portfolio gained an average of 15.2 per cent annually over the 25 years to the end of June, 2025, while the Canadian stock market (as tracked by the S&P/TSX Composite Index) trailed with average annual returns of 6.8 per cent.
(The returns herein are based on backtests using data from Bloomberg taken at the end of each month. They include dividend reinvestment but not fund fees, taxes, commissions or other trading costs. The portfolios are equally weighted and rebalanced monthly.)
In recent times, the portfolio fared well despite the U.S. tariff war. It climbed 12 per cent in the first six months of 2025 while the market index trailed with gains of 10.2 per cent. It did even better over the past 12 months with gains of 34.7 per cent compared with the market index’s advance of 26.4 per cent.
The portfolio picks its stocks by starting with the largest 300 on the Toronto Stock Exchange by market capitalization. It then narrows in on the stocks that pay dividends, which cut the list to 202 from 300 this week.
It then seeks stability by focusing on the 50 dividend-payers with the lowest volatilities over the prior 260 days. Volatility is a measure of how dramatically a stock’s price varies from day to day.
For instance, Enerflex Ltd. EFX-T has an above-average volatility over the past 260 days thanks to some big gains and downdrafts. While the Frugal Dividend portfolio favours lower-volatility stocks, higher-volatility stocks aren’t always bad investments. I happen to own a few shares of Enerflex myself. Mind you, I don’t expect it to climb in a calm and steady way in the near term.
The Frugal Dividend portfolio’s last step is to look for bargains in the remaining group of 50 low-volatility dividend stocks. It does so by picking the 10 stocks with the lowest, positive, price-to-earnings ratios (P/E), which is a time-tested measure loved by value investors.
Most large Canadian stocks pay dividends and low-volatility stocks almost always do so. But there are exceptions that are worth exploring, which prompted the creation of the Steady Frugal portfolio. It follows all of the steps of the Frugal Dividend portfolio with the exception that it happily holds both dividend and non-dividend payers alike. That is, the Steady Frugal portfolio starts with the largest 300 stocks on the TSX, narrows in on the 50 with the lowest volatilities over the prior 260 days, and then picks the 10 with the lowest P/Es.
The Steady Frugal portfolio gained an average of 15.6 per cent annually over the 25 years through to the end of June, 2025. It outperformed the Frugal Dividend portfolio by an average of 0.4 of a percentage point annually and it was also about 0.4 per cent less volatile over the 25-year period.
Mind you, the two portfolios are very similar and often hold exactly the same stocks. For instance, this week the 50 stocks with the lowest volatilities from the largest 300 on the TSX all pay dividends. (Kiwetinohk Energy Corp. KEC-T comes in at number 87 on the low-volatility list as the least volatile stock that doesn’t pay a dividend.)
With a little luck, the Frugal Dividend portfolio will continue to generate strong long-term returns of the sort that might help scribblers buy laptops that’ll allow them to write while the power is out.
Details on the stocks in the Frugal Divided 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.
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