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As retirement nears, we usually want to reduce investment risk and generate more steady income from our portfolios. One way to do that is to focus on high-dividend stocks rather than on the entire S&P/TSX Composite Index, which contains many stocks that pay few or no dividends.
Of course, there are some trade-offs between risk and returns. Specifically, the returns from a high-dividend portfolio may not be as high as from the broader market, but they should perform better in bad years because of dividend income. Indeed, the chart shows this is exactly what has happened since 2022.
If you go all the way back to 2015, however, the data tell a different story. In six out of seven years between 2015 and 2021, high-dividend stocks had more extreme returns than the broader market, meaning the highs were higher and the lows were lower.
The worst year was 2020, when the broader index had a positive return of 5.6 per cent while the high-dividend index lost 7.6 per cent. This is not what dividend-income investors signed up for. (Note the chart shows returns rather than just dividend income; returns include capital gains and losses.)
If we step back and assess the entire period from January, 2015, to Sept. 30, 2025, the broader index enjoyed an average annualized return of 10.2 per cent a year versus 8.7 per cent for the high-dividend index. More or less what we would expect.
The surprise is that returns from the high-dividend index were volatile, with a standard deviation of 4.9 per cent versus 3.9 per cent for the overall index. (Standard deviation is a measure of how volatile returns are and hence risk.)
In a nutshell, high-dividend investors incurred more risk with lower returns over a fairly long period.
What should investors – especially retirees – do with this information? It might not change your natural inclination to stock up on high-dividend stocks, but it is important to know that you might not achieve the result you hoped for.
The proxy used here for high-dividend stocks is the iShares ETF XEI-T, which mirrors the S&P/TSX Composite Dividend Index. For the broader market, my proxy is the iShares ETF XIC-T, which tracks the Core S&P/TSX Capped Composite Index.
Frederick Vettese is a former chief actuary of Morneau Shepell and the author of the PERC retirement calculator (perc-pro.ca)