With the advent of summer, Toronto faced a series of tumultuous storms last week causing a significant impact on the power supply network. In life, as well as the stock market, unpredictable situations present themselves in various forms and scales. Such uncertainties give rise to a sense of panic, especially in the stock market. It is for this reason that certain investors opt for more stable options like the Frugal Dividend portfolio.
The Frugal Dividend portfolio strategy revolves around the purchase of Canadian dividend stocks, with a relatively steady price history, available at a discounted price. With an impressive track record, this portfolio strategy saw an average yearly rise of 15.2 per cent over a period of 25 years up until June 2025. Comparatively, the Canadian stock market, as benchmarked against the S&P/TSX Composite Index, lagged behind with an average annual return of 6.8 per cent.
The mentioned returns are calculated through backtests using Bloomberg’s end-of-month data. It’s noteworthy that these calculations include the consideration and reinvestment of dividends, but do not account for fund fees, taxes, brokerage, or other trading-associated costs. The portfolios following this strategy are evenly weighted and rebalanced on a monthly basis.
Recent performances of the Frugal Dividend portfolio were seemingly unaffected by the U.S. tariff war. In fact, over the first half of 2025, the portfolio experienced a 12 per cent escalation, whereas the market index could only manage a 10.2 per cent gain. Over the past year, it significantly outperformed, achieving a substantial 34.7 per cent growth, as opposed to a 26.4 per cent increase by the market index.
The portfolio selection process for the Frugal Dividend portfolio begins with the top 300 companies listed on the Toronto Stock Exchange in terms of market capitalization. The portfolio then concentrates on those companies that pay out dividends, which refined the list to 202 from the initial 300 this week. Subsequently, it zeroes in on the 50 dividend-paying companies that exhibited the least volatility over the preceding 260 days, where volatility refers to the daily fluctuations in a stock’s price.
Take for example, Enerflex Ltd. EFX-T, which demonstrated an above-average level of volatility over the past 260 days due to considerable upticks and downturns. However, it’s important to understand that while the Frugal Dividend portfolio has a preference for low-volatility stocks, not all high-volatility stocks should be written off as bad investments.
The final step undertaken by the Frugal Dividend portfolio is hunting for bargains among the remaining 50 low-volatility dividend-paying stocks. They do this by zeroing in on the 10 stocks with the lowest positive price-to-earnings (P/E) ratios – a traditional measure revered by value investors.
It’s worth noting that most substantial Canadian stocks provide dividends and those with low volatility almost always do. Nevertheless, there are outliers worth considering, which led to the development of the Steady Frugal portfolio. This portfolio employs the same approach as the Frugal Dividend but is open to holding both dividend and non-dividend paying stocks.
The process of the Steady Frugal portfolio is similar to that of its counterpart. It starts with the largest 300 stocks on the TSX, hones in on the 50 stocks exhibiting the lowest volatility over the preceding 260 days, and ultimately selects the 10 with the lowest P/E ratios.
Over 25 years ending in June 2025, The Steady Frugal portfolio posted an average annual return of 15.6 per cent. This indicates a slightly superior average annual performance of 0.4 percentage points when compared to the Frugal Dividend portfolio. Additionally, it was found to be about 0.4 per cent less volatile across these 25 years.
However, there are strong similarities between the two portfolios that should not go unnoticed. They often hold identical stocks, which further proves their close relation.