At the beginning of the year, I wrote an article about the Dogs of the TSX also known as the Beating the TSX stock strategy (BTTSX). In this strategy, the largest publicly traded companies in Canada are sorted by dividend yield, then the top 10 positions are purchased annually (remove former income trusts and stocks that have a history of dividend cuts). I wasn’t planning on writing a mid-year update, but I recently received a number of emails about the topic and thought it was a good time for an update.
Background on BTTSX
As magical as it may seem, this strategy has been outperforming the TSX over the long term. Mind you, the strategy does not outperform every single year, but it has outperformed over the long term (past results do not guarantee future returns).
Between 1987 and 2003, the BTTSX had an average return of 12.47% vs the TSX which has returned about 9.5%. As you know, small improvements in portfolio performance can lead to a significant difference in portfolio size over the long term. Note my article on improving your portfolio performance by 1.7% through reducing your portfolio MER can lead to a 60% difference in portfolio size over 30 years.
I like this strategy in that investors are getting the highest possible yield out of the largest blue chip stocks in Canada with the possibility of dividend increases (several increases already in 2017). The downsides are that there is annual turn over (usually minimal) which can result in a tax hit in non-registered accounts and potential lack of diversification depending on the year.
BTTSX Dividend Stock Picks
So which stocks were generated for BTTSX in 2017? Here are the picks from the article at the beginning of the year:
For 2017, I generated the following picks for BTTSX:
- BCE (BCE)
- CIBC (CM)
- Telus (T)
- Power Financial (PWF)
- National Bank (NA)
- Bank of Nova Scotia (BNS)
- Fortis Inc (FTS)
- Enbridge (ENB)
- TransCanada Corporation (TRP)
- Rogers Communication (RCI.B)
The group is not bad in terms of diversification but could be better. We have 3 telcos, 4 financials, 1 pure utility, and 2 pipeline utilities. Ideally, we would also have a materials/resources, real estate, technology, and consumer stocks. More on how to build a proper dividend growth portfolio here.
BTTSX vs TSX
I used Google Finance and created a portfolio to help track performance over the year. If you have been following the market, you will know that the overall Canadian market has not been doing great thus far in the year, but thankfully, dividend stocks are doing a little better.
Here are the returns so far:
- BCE (BCE) +0.34%
- CIBC (CM) -2.52%
- Telus (T) +5.68%
- Power Financial (PWF) -0.06%
- National Bank (NA) +2.50%
- Bank of Nova Scotia (BNS) +2.95%
- Fortis Inc (FTS) +8.86%
- Enbridge (ENB) -10.77%
- TransCanada Corporation (TRP) +3.94%
- Rogers Communication (RCI.B) +24.36%
The overall BTTSX performance so far is 5.2% including dividends. What about the Canadian index? Year to date, XIC.TO has returned about 0% including dividends. So far in the year, BTTSX is beating the Canadian index by 5 points, which is pretty significant. However, it’s only halfway through the year, and I expect to see more downward pressure on dividend stock returns as interest rates increase, so we’ll see where returns stand at the end of the year.
Disclaimer: I have shares in all of the stocks mentioned in this post. This post should be used for informational purposes only.If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).