Table of Contents
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- Dogs of the TSX Dividend Stock Strategy Implementation
- Performance of the BTTSX Strategy
- BTTSX Dividend Stock Picks For 2022
- My Own Implementation of BTTSX
- My Overall Top 2022 Dividend Picks After Adjusting for Dividend Growth
- Dogs of the TSX FAQ
- Final Thoughts
I’ve been writing about the investing strategy known as the “Dogs of the TSX” for over a decade. The strategy was borrowed from the “Dogs of the Dow” strategy down in the USA, and was popularized in Canada by MoneySaver magazine as the Beating the TSX Dividend Stock Strategy – or BTTSX. (Click here to skip directly to my 2024 picks).
The theory behind the Dogs of the TSX strategy is to look for solid cash-flow positive stocks that have fallen out of favour for one reason or another. In other words, you’re looking to take advantage of short-term market inefficiency when it comes to the pricing of blue-chip Canadian stocks. While the Dogs of the TSX investments finished 2023 about 3% behind the overall TSX 60 index, it has historically outperformed by about 2.5%.
The mechanism for the original Beating the TSX stock picking strategy was to rank companies by their dividend yield. The theory is that these companies have seen their stock price beat up for some reason, but are still producing enough profit to pay a high dividend (hence the high yield).
I personally have slightly altered the original BTTSX to come up with my own modified Dividend Dogs of the TSX strategy. I take the TSX 60, and list all sixty stocks by yield. From there, I remove Real Estate Investment Trusts (REITs), and any stocks that have cut dividends OR have insanely high payout ratios (foreshadowing a future dividend cut).
You’ll notice that my Dividend Dogs of the TSX list has a lot in common with my Best Canadian Dividend Stocks list that I update monthly. There’s obviously a lot of overlap in selecting value-driven, stable, Canadian company stocks.
Top Canadian Dogs of the TSX Pick for 2024: Power Corp (POW)
My favourite stock of the 2024 Dogs of the TSX is Power Corp (POW) – an old standby for Canadian dividend investors.
For those that aren’t completely familiar with the company, Power Corp is basically a holding company for Great-West Life Insurance, IGM Financial (previously “Investor’s Group” and “Mackenzie Investments”) and a holding company full of European diversification that goes by Groupe Bruxelles Lambert. You can see their entire business structure below:
Of these companies, Great West Life is by far the biggest chunk of the overall Power Corp portfolio (making up nearly 70% of the holding company). If interest rates trend downward, Canadian life insurance companies should do quite well.
While I am less of a fan of the various mutual-fund-dependent companies under the IGM banner, I think Power has made a smart investment in the Wealthsimple robo advisor, which should help to offset the losses they see in their traditional wealth management models. Essentially they’re disrupting their own business model before someone else does!
Last year saw a really solid Earnings-per-Share jump for Power Corp, and their Great West Life main holding looks significantly undervalued to me – especially if interest rates begin to decrease. With a low P/E ratio of about 11x, and a juicy 5.6% dividend yield, I think it’s tough to go too far wrong. I expect a 7-8% dividend raise for Power Corp shareholders in 2024.
Bottom line – I think Power Corp is worth more than the sum of its parts, and I love the dividend I’m going to get paid (not to mention the stock buybacks) while investors come to realize the underlying value of the companies in the Power portfolio.
I was very tempted to go with Telus (T) in this spot given that I really think it’s a great company, I generally love investing in Canadian oligopolies, and the fact that Telus’ share price got beaten up so much last year.
That said, I’m a little gun shy on making Telus my official 2024 Dogs of the TSX stock pick due to their debt overhang. Most smart folks that I pay attention to believe that interest rates will go down in 2024. Boy, do Telus and the other telecoms hope so! I’m avidly watching Telus to see how they handle their capital expenditure spending, cash flow, and debt servicing costs. It could easily be the comeback stock of the year.
Dogs of the TSX Dividend Stock Strategy Implementation
Here is the step by step procedure of how this strategy is implemented:
1. Sort the TSX60 by dividend yield.
2. Purchase the top 10 positions with equal dollar amounts but remove former income trusts (maybe some exceptions) and stocks that have a shaky dividend history (ie. dividend cuts, cyclical companies, pausing dividends etc).
3. Hold your positions until the new year at which point you check the list of top 10 yielding blue chips on the TSX again. If there are any differences, you swap out positions until they match.
4. Repeat annually going forward.
While it may sound like a lot of portfolio churn, since the TSX is fairly small, the top 10 list doesn’t vary much from year to year.
It also turns out that a number of the largest dividend stocks in Canada are alsodividend growth stocks.While the traditional method of picking these positions is to buy the top 10 while removing former income trust and companies that have cut their dividends in the past, I prefer to pick stocks that also have a history of dividend increases (most of them do).
Performance of the BTTSX Strategy
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 (however, note that past results do not guarantee future returns).
According to the Beating the TSXWikipage, between 1987 and 2017, the BTTSX had an average return of 12.4% vs the TSX which has returned about 9.6%.
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% throughreducing your portfolio MER can lead to a 60% difference in portfolio sizeover 30 years.It also helps to use alow-cost online broker.
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.
The downsides are that there is annual turnover (usually minimal) which can result in a tax hit in non-registered accounts and potential lack of diversification depending on the year. For example, one year, it could be a high concentration of financial stocks in the portfolio, and the next could be utilities.
Beating the TSX Dividend Stock Picks For 2024
Now, for what you’ve all been waiting for, the 2024 BTTSX stock picks (with a juicy average dividend yield of about 6.5%!)
- Enbridge (ENB)
- BCE (BCE)
- TC Energy Corp (TRP)
- Algonquin Power and Utilities Corp (AQN)
- Bank of Nova Scotia (BNS)
- Telus (T)
- Pembina Pipeline (PPL)
- Emera (EMA)
- CIBC (CM)
- Power Corp (POW)
If you’re curious, here’s what the Beating the TSX strategy had us picking in 2023:
- Algonquin Power and Utilities Corp (AQN)
- Enbridge (ENB)
- TC Energy Corp (TRP)
- Bank of Nova Scotia (BNS)
- BCE (BCE)
- CIBC (CM)
- Power Corp (POW)
- Pembina Pipeline (PPL)
- Manulife (MFC)
- Telus (T)
For further context, here’s the old the MDJ 2022 BTTSX picks:
- Enbridge (ENB)
- Pembina Pipeline (PPL)
- BCE (BCE)
- TC Energy Corp (TRP)
- Manulife (MFC)
- Algonquin Power and Utilities Corp (AQN)
- Power Corp (POW)
- Suncor (SU)
- Bank of Nova Scotia (BNS)
- Telus (T)
The 2024 Dogs of the TSX group contains 2 telcos, 3 financials, 1 pure utility, 1 utility + renewable hybrid, and 3 pipeline utilities (or “mid-stream” energy companies). For a complete portfolio, we would also need materials/resources, real estate, technology, and consumer stocks. If you want to round out your dividend portfolio, check our top dividend stocks for 2024.
If you are considering this strategy, I would recommend using it as part of your Canadian exposure and using index ETFs for global diversification.
My top 10 holdings after several years of doing the BTTSX are:
- Enbridge (ENB)
- Scotia Bank (BNS)
- BCE (BCE)
- TC Energy Corp (TRP)
- Telus (T)
- Manulife (MFC)
- TC Energy Corp (TRP)
- Power Corp (POW)
- Pembina Pipeline (PPL)
- Algonquin (AQN)
My Own Implementation of Beating the TSX
I mentioned in an earlier financial freedom update that my spouse had some cash saved up, and we were looking to deploy into dividend stocks using the Dogs of the TSX strategy. We ended up opening yet another account at Qtrade.
My net worth update from the end of the 2023 shows that I’m now generating $78,800 in dividend cash flow each year. That’s a figure that I logically thought I would see one day when I did the math, but it’s still somehow a surprise when I typed it out.
Being a dividend growth investor, we decided to utilize a hybrid approach to this strategy. We essentially sorted the TSX60 by yield, but only picked stocks with a history of dividend increases. We also added a couple of positions for diversification. So it’s not a pure Dogs of the TSX investing strategy.
While going through this process for 5 years now, I’ve noticed that I’m good at picking and buying the stocks, but terrible at selling! I’d much prefer to add to existing or new positions with new money rather than selling to gain capital.As of this post, I have not sold any of my original positions.
Since inception in September 2017 to January 2022, using XIRR the portfolio has returned about 12% while the index (XIC.TO) has returned about 8%. Not a bad result, but in reality, I’m more focused on the dividends that the portfolio produces.
My Overall Top 2024 Dividend Picks After Adjusting for Dividend Growth
Name | Ticker | Sector | Div Streak | Dividend Yield | 5yr Revenue Growth | 5yr EPS Growth | 5yr Dividend Growth | Payout Ratio | P/E |
Fortis | FTS.TO | Utilities | 50 | 4.08% | 6.54% | 3.66% | 5.78% | 74.83% | 18.15 |
Canadian National Railway Co | CNR.TO | Industrials | 27 | 2.15% | 3.28% | 7.76% | 11.67% | 36.82% | 18.59 |
Canadian National Resources | CNQ.TO | Energy | 22 | 4.33% | 12.88% | 28.65% | 22.52% | 48.93% | 14.31 |
Telus Corp | T.TO | Communications | 19 | 6.86% | 7.25% | -15.42% | 6.73% | 251.01% | 44.29 |
Stella Jones | SJ.TO | Materials | 18 | 1.21% | 9.34% | 23.20% | 13.90% | 16.26% | 15.54 |
Emera | EMA.TO | Utilities | 17 | 5.87% | 3.00% | 3.27% | 4.08% | 77.61% | 21.92 |
National Bank | NA.TO | Finance | 13 | 3.82% | 7.32% | 9.57% | 10.28% | 42.05% | 11.96 |
Alimentation Couche-Tard | ATD.TO | Business | 13 | 0.85% | 3.72% | 12.27% | 24.25% | 16.60% | 21.25 |
TD Bank | TD.TO | Finance | 12 | 5.96% | 6.55% | -1.40% | 8.03% | 68.32% | 13.53 |
Brookfield Corp | BN.TO | Finance | 11 | 0.67% | 11.97% | -22.46% | -6.13% | 45.23% | 75.50 |
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Dogs of the TSX FAQ
What are the Dogs of the TSX 2024?
The Dogs of the TSX for 2024 are: Enbridge (ENB), BCE (BCE), TC Energy Corp (TRP), Algonquin Power and Utilities Corp (AQN), Bank of Nova Scotia (BNS), Telus (T), Pembina Pipeline (PPL), Emera (EMA), CIBC (CM), Power Corp (POW).
What is the beating the TSX strategy?
The beating the TSX strategy, often called the BTTSX or the Dogs of the TSX method of ranking Canadian stocks is based on the idea that you can select the most undervalued stock by looking at dividend yield. On average, the Canadian blue chip stocks that have a high dividend yield are likely to be undervalued versus their peers.
Where does the Dogs of the TSX name come from?
It is a play on the “Dogs of the Dow” strategy popularized in the USA by Michael B. O’Higgins, who wrote a book about it in 1991.Dogs of the TSX was subsequently created under the original title of “Beating the TSX” or “BTTSX” by David Stanley in Canadian Moneysaver Magazine.
Does a stock being a “dog” make it bad?
In this case, being a “Dog of the TSX” simply means that amongst a group of stocks with pre-selected minimum standards, the stocks performed the worst the year before. It’s sort of a systematic way of taking your own bias out of the dividend stock selection process, and choosing stocks that have had a short-term negative momentum for reasons not supported by the fundamentals.
What are the best dividend stocks to buy in Canada on the Toronto Stock Exchange?
We think that in 2022, Canadian Bank Stocks and Canadian Energy Stocks are the best dividend stocks to own. You can see our full list of Canada’s best dividend stocks.
What is the Dogs of the Dow TSX?
The Dogs of the TSX investing strategy is all about using a systemic approach to find value.The user-friendly way of doing this is to look at stocks that have had their share prices lowered, and consequently have high dividend yields.
Usually this is accompanied by a look at free cash flow financials.The Dogs of the TSX strategy has worked (and the original Dogs of the Dow strategy has worked as well) outperforming benchmarks over several decades (although not always in the short term).
Who invented the Beating the TSX dividend strategy?
David Stanley is widely credited with inventing or creating the Beating the TSX investing strategy. That said, it should be noted that the Dogs of the TSX strategy is a modified version of the famous “Dogs of the Dow” investing strategy popularized down south by Michael O’Higgins.
Is Beating the TSX (BTSX) all about dividend yield?
Beating the TSX (BTSX) is an investing strategy that does involve ranking Canadian stocks by dividend yield. However, various interactions of the BTSX strategy include follow up filters to identify the true “Dogs of the TSX” that they want to add to their portfolio.
Final Thoughts
As you can see, the BTTSX 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 (however, note that past results do not guarantee future returns).
Perhaps it’s the fact that large-cap stocks on the TSX tend to beat Canadian small caps, which at times can act as a drag on the overall index (Canadians love their oligopolies with large barriers to entry after all). Another reason may be that as yields rise for blue chips, it may mean that their stock price is relatively low which can equate to a form of value investing.
If you are considering the Dogs of the TSX strategy, I would recommend using it as part of your Canadian exposure and using all-in-one ETFs for added diversification.
Using an all-in-one ETF can give you instant international exposure, and is especially key for getting some of your money into areas like tech and healthcare where Canada doesn’t have many champions.
Canadian dividend stocks have historically been an excellent value (and I honestly believe they represent one of the best places to build your nest egg) but a responsible investor knows that diversifying risk is essential to long-term success.See my Canadian dividend stocks list for more information on what I’m putting new money into these days.
