The Dividend Monster portfolio starts with a solid dividend base and adds a layer of momentum in an effort to outperform
Halloween is fast approaching and little ghouls and goblins will soon be roaming the streets searching for sweets and treats. I remember being fond of chocolate peanut butter cups in the time long ago before Halloween became haunted by food allergies.
The Dividend Monster approach starts with the largest 300 common stocks on the Toronto Stock Exchange and narrows in on the dividend payers. It then sticks to the 50 per cent of dividend stocks with the highest yields before adding momentum to the mix by buying an equal-dollar amount of the 10 high-yield stocks with the highest returns over the prior year. The portfolio is rebalanced once a month.
The Dividend Monster, like many momentum-based strategies, suffers from sharp downturns from time to time. It prompted me to try adding a low-volatility tilt to help smooth out its bumpy ride. But doing so could backfire and might be akin to taking a chocolate peanut butter cup and slathering it with sardines.
The second is a 10-stock variant that inserts the volatility test near the start of the process. It begins with the 300 large Canadian stocks on the TSX and cuts the list to 240 by removing the 60 stocks with the highest volatilities over the prior 260 days. It then proceeds as normal by narrowing in on the half of dividend payers with the highest yields. The variant then picks 10 stocks from the remaining high-yield stocks that have the highest returns over the prior year.
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