A piece of frugal dividends from the United States

Disaster struck on the way to visit family in Southern Ontario. Sadly, the ride now lacks the excellent butter tarts that once accompanied it, due to the retirement of a great baker. While his company is in new hands, his magical cakes haven’t made the transition.

Since I’m out of good butter, I’ll have to turn to a slice of American pecan pie for help instead.

When it comes to the markets, Wall Street offers a similarly acceptable alternative to the exceptional Canadian Frugal Dividend portfolio. In this case, its American counterpart has achieved an average annual gain of 12.1 percent since the turn of the century, easily beating the market.

The US Frugal Dividend Portfolio builds returns by starting with the roughly 500 stocks in the S&P 500 index and discarding the stocks that don’t pay dividends. It then filters out companies without a relatively stable price history by selecting the 50 with the lowest volatility over the past 260 days. The list of 50 is ultimately narrowed down to the 10 bargain stocks with the lowest price-to-earnings ratios. The portfolio contains an equal dollar amount of the 10 stocks and is rebalanced (or refreshed) monthly.

The US Frugal Dividend Portfolio beat the market with an average annual gain of 12.1 percent from the end of 1999 to the end of April 2024, while the S&P 500 rose an average of 7.2 percent per year over the same period. (All returns in this document are based on monthly data from Bloomberg and are presented in US dollar terms. Returns include dividend reinvestment but do not include fund fees, taxes, commissions or other trading costs.)

You can view the portfolio and market index performance history in the first accompanying chart.

The long-term portfolio returns are nice, but it’s also important to examine dark periods when the stock market crashed and the portfolio languished.

The second chart shows tough times for the portfolio and the market index since the turn of the century. It shows how far they have fallen, compared to their previous highs.

The early start was particularly difficult with a few disastrous crashes. The market index suffered a sickening 45 percent decline, starting from a peak in 2000 at the top of the dot-com bubble. A few years later, during the 2008-2009 financial crisis, the market index fared even worse, plunging 51 percent.

On the other hand, the US Frugal Dividend portfolio held up relatively well after the dot-com bubble burst with a brief decline of 16 percent. Mind you, during the financial crisis it fell by 42 percent.

More recently, 2020’s rapid COVID-19 crash sent the market down 20 percent, while the portfolio fared slightly worse, down 22 percent before recovering.

Both fell again when war and inflation hit in 2022. The market fell 24 percent in the fall of 2022, but the portfolio weathered the attack better with a dip of only 16 percent.

I’m hopeful that the US Frugal Dividend portfolio – and its Canadian counterpart – will continue to deliver delicious returns over the long term. But investors should expect setbacks over the years – and perhaps big ones.

Norman Rothery, PhD, CFA, is the founder of

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