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Scotia Wealth Management

What is the Dri Dividend Investment Strategy?

An exclusive look behind the curtain of the successful Dri Dividend Investment Strategy

March 4, 2021

Are you curious about how and why my investment dividend strategy works?

If so, I’m going to share some of its technical details and what magic underpins its success.

But first, a brief history of me, Richard…

I started my career in 1995 as a mutual fund salesperson, but I did not feel I offered real value to clients until I earned my chartered financial planner designation in 1998. With my CFP, I was able to help clients with their retirement calculations, insurance needs, estate plan, tax planning and other financial planning issues.

But my ability to offer valuable investment advice didn’t begin until later.

After a brief stint recommending mutual funds, I began to look for alternatives. I conducted months of research, after which I concluded that companies that pay and grow their dividend delivered a higher return and lower risk than companies that did not pay a dividend or those that cut their dividend.

Armed with this insight, I hired a company called Computerized Portfolio Management Services (today part of Morningstar Inc.) to independently test my conclusions.

I was not surprised when they confirmed my findings and agreed that dividend growers historically outperform companies that do not pay a dividend or that cut their dividends.

The Secret Sauce

Of course, the next question was, how do I find dividend growers?

Again, CPMS went to work and, after months of research, found nine fundamental factors common to all successful dividend growers.

CPMS suggested we screen and rank all the S&P/TSX companies against the following nine factors and preferences:

The Ranking System

Each stock would receive a score of A to D depending on how well or poorly it scored against each factor. Then, the cumulative score would be tallied.

For example –

If Company XYZ had a price to trailing earnings per share (EPS) of 35 and the median was 20, XYZ would receive a score of D on this factor. The scoring would continue for the remaining eight factors until the company received a grade that averaged the score of all nine factors.

All stocks were then ranked based on their cumulative score.

For example –

If Company ABC ranked first out of 300 companies, that meant it met all nine factors the best. If Company XYZ ranked number 300, it didn’t meet the nine factors well: 299 companies passed the screening with higher scores.

The Buy Strategy

With the stocks ranked from 1 to 300 based on their cumulative scores, the next step was to establish a buy strategy.

Further research indicated that stocks in the top 15% of S&P/TSX would be purchased (from rank #1 to rank #45).

Each day, CPMS would re-rank the universe, and additional testing revealed that a stock could be allowed to drift in the ranking as long as it stayed in the top one-third of the universe (from rank #1 to #90) without impacting the long-term return of the model.

The Sell Strategy

Additional testing showed that a stock should be sold when its ranking moved to the bottom two-thirds of the universe (from #91 to #300).

How many stocks should a strategy hold?

This is the remaining question to answer.

Again, I turned to CPMS and, after running numerous back tests, they determined that 20 stocks provided the highest return with the least amount of risk.

Data revealed that increasing the number of stocks decreased the risk but also decreased the expected return disproportionately, while fewer than 20 stocks accomplished the opposite.

What’s the model’s investment return?

CPMS back-tested the above rules for stocks in the S&P/TSX 300 from December 31, 1990 to January 31, 2021, a period covering 30 years.

The performance of the model is exactly as predicted in my initial research: dividend growth stocks outperformed the S&P/TSX 300 (which is a basket of dividend-paying and non-paying stocks).

According to the report generated by CPMS (as of January 31, 2021), the model has an annual average return from inception of 13.7% vs. the S&P/TSX’s benchmark at 8.4%.

Richard Dri Canadian Dividend Model

Let’s remember, over the short term, that the model doesn’t always outperform.

For example –

Over the last five years, the model’s average return is slightly below the benchmark (5.8% vs. 6.1%). But over the last 10 years, the model outperforms the index significantly (11.8% vs. 5.8%).

According to the back-testing, the model’s historical investment return beat the index 60% of the time.

Putting it all together

My strategy predetermines three variables:

  • The fundamental factors used for screening and ranking
  • The buy and sell criteria
  • The number of stocks to hold

I have deliberately established the rules before buying stocks, and I have deliberately removed all emotion from the investment process.

Finally, the investment process was back-tested and proved to perform well over the long term. Proving the Dri Dividend Model a great investment strategy for long-term portfolio growth.

So there it is—a glimpse of the magic that drives the Dri dividend investment strategy.

Of course, it’s not magic at all.

There are no tricks or illusions, only hard data and evidence-based calculations. But the long-term growth it offers is definitely thrilling.

If you are a DIY investor, I suggest that you write down your own investment strategy and don’t forget to back test it to see how it would have performed if applied historically.

If you would like help with the back-testing, please give us a call and we’ll test the strategy together.

If you don’t have an investment strategy, I suggest you call our office for an appointment and we can determine what dividend growth strategy fits your investment profile.

Never Retire Profile

Perseverance Rover

What’s not to like about Dolly Parton? Whether your taste in music or entertainment overlaps with Parton’s creative output over the 50+ years of her career or not, there’s no doubt she has made a significant impact in many areas over her lifetime. Born 75 years ago and raised in a one-room cabin in Tennessee along with her 11 siblings, Parton began singing on local radio as a child and moved to Nashville the day after she graduated from high school. In addition to her decades-long career in music and film, Parton owns several businesses in Tennessee and is known for her philanthropy. For example, her literacy program mails one book per month to every enrolled child (currently about 850,000) from birth through to entering Kindergarten. And, in addition to supporting many healthcare initiatives, she most recently donated $1M toward COVID-19 vaccine research at Vanderbilt University, partially funding the new Moderna vaccine.

The process of finding a wealth advisor can be overwhelming. It is our job to make that process simpler and easier. Dri Financial Group’s proprietary ​Wealth Navigator Process​ is designed with you in mind. It’s structured framework helps you make an informed decision and feel confident in our team and management practices before we get started.

We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the ​Wealth Navigator Process​ ​or our team, call me any time at 416.355.6370 or email me at​ ​richard.dri@scotiawealth.com​.
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If you are ready to dive deeper into your financial literacy journey, we have a wide range of free tools and educational resources available.

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