June brings youthful dreams of riding roller coasters all day long. While metal giants thrill kids, investors may seek a wild ride in the markets instead. The Dividend Monster portfolio, which focuses on dividend stocks on the upswing, offers such an experience.
Over the 26 years ending April 2026, the portfolio achieved an average annual growth rate of 16.6 percent, handily beating the S&P/TSX Composite Index's 7.9 percent. These backtested returns, based on monthly data from Bloomberg, include dividend reinvestment but exclude fees, taxes, and trading costs. The portfolio is equally weighted and rebalanced monthly.
How the Dividend Monster Works
The strategy starts with the 300 largest stocks on the Toronto Stock Exchange by market capitalization. It then selects the top 50 percent of dividend payers with the highest yields—recently narrowing the list to 97 stocks. Finally, a momentum test picks the 10 stocks with the highest returns over the prior year.
In the 12 months to April 2026, the portfolio surged 43 percent, though the market also performed well with a 40 percent gain. This period has been unusually strong for both the Dividend Monster and Canadian stocks broadly.
Exploring Variations
To see if including lower-yielding dividend stocks could improve returns, two variants were tested: one using the top 60 percent of dividend payers by yield ("large") and another using the top 75 percent ("larger"), before applying the momentum test.
The large variant averaged 16.7 percent annually over 26 years, slightly edging the original Dividend Monster. The larger variant returned 16.3 percent. For context, a simple dividend portfolio (top 50 percent of payers, no momentum) averaged 12.7 percent, while versions with 60 percent and 75 percent yielded 12.7 and 12.6 percent respectively.
Risk and Volatility
The original Dividend Monster was about 22 percent more volatile than the market index over 26 years, experiencing significant drawdowns. During the 2008-09 financial crisis, the Dividend Monster, large, and larger variants fell 52, 53, and 56 percent from highs, versus the index's 43 percent decline. However, all three largely avoided the index's plunge after the early 2000s internet bubble burst.
Investors considering the Dividend Monster should prepare for a bumpy ride. While past performance is promising, future results remain uncertain. For current stock holdings, refer to regular updates at The Globe and Mail.
Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.
