Dogs of the TSX (Beating the TSX) Dividend Stock Picks – 2021 Volatile Market Edition

Over the past number of years, I’ve been writing about the investing strategy known as Dogs of the TSX (taken from “Dogs of the Dow” in the USA) – also known as the Beating the TSX Dividend Stock Strategy (BTTSX). (Click here to skip directly to my 2021 picks)

The main idea behind this strategy is to take the largest publicly traded companies in Canada (known as the TSX 60), sort them by dividend yield, and then purchase the top 10 positions annually (removing former income trusts and stocks that have a history of dividend cuts).  You’ll notice that it has a lot in common with my Canadian dividend stocks 2021 update that I update monthly.

While 2021 isn’t shaping up to be quite as great an opportunity as 2020 (when strong dividend stocks sunk to mouth-watering levels) it has been fun watching my TSX-driven net worth grow at a substantial rate.

Spoiler: Back in January, I highlighted Enbridge as my favourite stock for 2021 as the share price was beaten down simply because it was part of the energy sector.  While the stock has generated some unpleasant media noise, the dividends just keep pouring in (at an over 8% yield on my purchase price from late in 2020) and there has been a nice capital appreciation as well!  With Line 3 construction coming along nicely, revenue growth prospects look quite strong.  Given Enbridge’s long-term commitment to dividend-growth, stronger revenues are very likely to lead to increased dividends.

My picks are largely based on the information I get from from my friend Mike over at Dividend Stocks Rock. On top of a free newsletter which i highly recommend, DSR also offers an amazing platform full of useful tools and advice that will help you really optimize your investing strategy. Not only that, but for a limited time only, MDJ’s users get an exclusive $100 discount by using the code MDJGOPRO.

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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 also dividend 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 TSX Wiki page, 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% through reducing your portfolio MER can lead to a 60% difference in portfolio size over 30 years.  It also helps to use a low-cost discount 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.  There were a few dividend cuts in 2020 as companies sought to fortify their balance sheets in case the market crises carried on for several years.  The next couple years look like much more solid footing for our dividend kings

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 financials in the portfolio, and the next could be utilities.

BTTSX Dividend Stock Picks for 2021

Now, for what you’ve been waiting for, the BTTSX stock picks.  Before we get into the 2021 picks, let’s take a look at last year.

Here are the MDJ 2020 BTTSX picks:

  1. Enbridge (ENB)
  2. CIBC (CM)
  3. BCE (BCE)
  4. Scotia Bank (BNS)
  5. Great-West Life (GWO)
  6. Telus (T)
  7. Emera (EMA)
  8. TransCanada Corporation (TRP)
  9. Bank of Montreal (BMO)
  10. Brookfield Infrastructure (BIP)

As we head into 2021, here are the MDJ 2021 BTTSX picks:

  1. Enbridge (ENB)
  2. Pembina Pipeline (PPL)
  3. BCE (BCE)
  4. TC Energy Corp (TRP)
  5. Power Corp (POW)
  6. Canadian Natural Resources (CNQ)
  7. Shaw (SJR)
  8. CIBC (CM)
  9. Bank of Nova Scotia (BNS)
  10. Emera (EMA)

The 2021 group contains 2 telcos, 3 financials, 1 pure utility, and 4 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 2021.

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:

  1. Enbridge (ENB)
  2. Power Corp (POW)
  3. CIBC (CM)
  4. Scotia Bank (BNS)
  5. Manulife (MFC)
  6. BCE (BCE)
  7. Bank of Montreal (BMO)
  8. Toronto Dominion Bank (TD)
  9. Telus (T)
  10. Brookfield Infrastructure (BIP)

My Own Implementation of BTTSX

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 Questrade.

Our “non-registered” dividends shown in a recent update are from our “BTTSX” dividend portfolio.

Q1 2020 Dividend Income Update + Q1 2021 Dividend Income Update (new!)

 AccountDividends/yearYield
SM Portfolio$7,9003.96%
 TFSA 1$4,2004.72%
 TFSA 2$4,0004.75%
 Non-Registered$3,6004.22%
 Corporate Portfolio$28,5003.77%
 RRSP 1$7,9002.59%
 RRSP 2$3,4002.44%
  • Total Portfolio Value: $1,263,610
  • Total Yield: 4.71%
  • Total Dividends: $59,500/year (+7.8%)

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 almost 3 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.

Having said that, this is what the portfolio looks like today:

  1. BCE (BCE)
  2. Enbridge (ENB)
  3. CIBC (CM)
  4. Telus (T)
  5. Canadian Utilities (CU)
  6. TransCanada (TRP)
  7. Sunlife (SLF)
  8. Great-West Life (GWO) – POW owns GWO
  9. Emera (EMA)
  10. Royal Bank (RY)
  11. Canadian National Railway (CNR) – added this for a bit of diversification
  12. Thompson Reuters (TRI)

Since inception in September 2017 to January 2021, using XIRR the portfolio has returned about 11% 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 2021 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

PE

FTS.TO

Utilities

47

3.57%

5.75%

0.08%

6.79%

66.80%

21.15

ENB.TO

Energy

25

7.06%

2.95%

N/A

11.74%

206.36%

31.24

CNR.TO

Industrials

25

1.59%

1.85%

2.64%

12.97%

45.87%

29.35

T.TO

Communications

17

4.69%

4.30%

-3.87%

7.12%

77.05%

27.04

EMA.TO

Utilities

14

4.41%

14.57%

6.88%

8.28%

46.19%

15

NA.TO

Finance

11

3.12%

6.84%

6.66%

4.79%

63.69%

N/A

ATD.B.TO

Business

11

0.74%

23.95%

12.74%

24.40%

8.95%

12.98

AQN.TO

Utilities

10

4.42%

11.06%

18.88%

36.54%

31.69%

9.08

RY.TO

Finance

10

3.57%

6.85%

6.02%

3.05%

54.18%

14.97

ITP.TO

Business

2

2.61%

4.70%

10.22%

6.59%

48.79%

18.64

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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.

There are some downsides to the Dogs of the TSX investing strategy though.  First, the annual turn over (usually minimal) can result in a tax hit in non-registered accounts.  Second, there is a potential lack of diversification depending on the year.  For example, one year, it could be a high concentration of financials in the portfolio, and the next could be utilities.

If you are considering this strategy, I would recommend using it as part of your Canadian exposure and using all-in-one ETFs for added diversification.

See my Canadian dividend stocks list for more information on what I’m putting new money into these days.

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FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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zasid
2 months ago

nice one will all the ROGERS + SHAW drama do you think Shaw can be a good choice at this point? or should it be swap with something different ?thanks

Matt
1 year ago

If any one is interested, there is a Canadian site dedicated to Beating the TSX:

DividendStrategy.ca

It has the annual list, plus updates to the portfolio monthly for those needing up to date information. There is also a complete list of the TSX 60 stocks organized by dividend yield.

BTSX has a long history of generating returns in excess of the benchmark. Interestingly, a recent post shows how Beating the TSX has out-performed the index over various time periods after recent market crashes, which is especially helpful given the current situation. If you’re not sure how to implement the strategy in a practical way, there is information on that too. All of the information is free.

johnd
1 year ago

I have some of these. The yields are great and these companies have been paying divs for decades.

My big worry right now is the Canadian ecomy is in trouble, 6 million jobs have been lost. I don’t think the full ramification of this is yet know, let alone priced in.

In a conservative approach, which of this would be the most secure to
1- continue paying divs?
2- not depreciate in price substantially?

Kev
1 year ago

Hello MDJ, I have ~120k of room between me and my wife’s TFSA account.

Do you think investing the 120k in the TFSA or RRSP account is a better choice right now?

We have the cash sitting in Questrade and I am trying to decide what to do.

Thanks

Cris
1 year ago
Reply to  Kev

I will go for TFSA when market is down and RRSP when is up.