Smaller Dividend-Paying Stocks Deliver Market-Beating Returns

Strategic Insights -

The Smaller Stable Dividend portfolio, comprised of 100 smaller dividend-payers, has outperformed the S&P/TSX Composite Index by an average of 8.4 percentage points annually over the past 25 years. This growth-focused approach, which narrows in on the smallest 100 stocks from the Toronto Stock Exchange's top 400, has yielded impressive results, with an average annual return of 15.2% compared to the market's 6.8%. The portfolio's success can be attributed to its focus on smaller stocks with lower market capitalizations, which tend to outperform the market over the long term.

Key Takeaways:

  • The Smaller Stable Dividend portfolio has delivered a 15.2% average annual return over the past 25 years, outperforming the S&P/TSX Composite Index by 8.4 percentage points.
  • The portfolio's success can be attributed to its focus on smaller stocks with lower market capitalizations, which tend to outperform the market over the long term.
  • The Smaller Dividend portfolio, which tracks the dividend-paying stocks within the smaller 100, has posted average annual returns of 14.3% over the 25-year period.
  • The High-Yield portfolio, which selects the half of stocks in the Smaller Dividend portfolio with the highest dividend yields, has trailed the other dividend portfolios, with an average annual gain of 13.6%.
  • The High-Yield portfolio has been more volatile, with a 19% increase in volatility compared to the Smaller Dividend portfolio and a 33% increase in volatility compared to the Smaller Stable Dividend portfolio.
  • The Smaller Stable Dividend portfolio has outperformed the market index in all three significant downturns of the past 25 years, with the market index falling by more than double the portfolio's decline.

Statistics:

  • The Smaller Stable Dividend portfolio has delivered an average annual return of 15.2% over the past 25 years.
  • The S&P/TSX Composite Index has gained an average of 6.8% annually over the same period.
  • The portfolio's average annual return is 8.4 percentage points higher than the market index.
  • The Smaller Dividend portfolio has posted average annual returns of 14.3% over the 25-year period.
  • The High-Yield portfolio has an average annual gain of 13.6%.
  • The Smaller Stable Dividend portfolio has a 19% lower volatility compared to the Smaller Dividend portfolio.
  • The Smaller Stable Dividend portfolio has a 33% lower volatility compared to the High-Yield portfolio.
  • The market index fell 43% in the early 2000s, while the Smaller Stable Dividend portfolio declined by 10%.
  • The market index fell 47% in the 2008-09 financial crisis, while the Smaller Stable Dividend portfolio declined by 40%.

Sources:

  • Bloomberg
  • The Globe and Mail