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Dogs of the TSX (Beating the TSX) Dividend Stock Picks – 2019 Edition

dog of the tsx dividend stock picks 2019

Over the past number of years, I’ve been writing and including updates on the outperforming Dogs of the TSX also known as the Beating the TSX dividend stock strategy (BTTSX).

At a high level, in this strategy, the largest publicly traded companies in Canada (TSX 60) 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).

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 (I use this site to sort by yield).
  2. Purchase the top 10 positions with equal dollar amounts (remove former income trusts and stocks that have a history of dividend cuts).
  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 (several increases already in 2019).

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.  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

So which stocks were generated for BTTSX in 2019? Here are the picks that I generated at the beginning of 2019:

  1. Enbridge (ENB)
  2. BCE (BCE)
  3. CIBC (CM)
  4. Power Financial (PWF)
  5. TransCanada Corporation (TRP)
  6. Scotia Bank (BNS)
  7. Emera (EMA)
  8. Canadian Utilities (CU)
  9. Telus (T)
  10. Manulife (MFC)

This is how it compares to 2018 dividend stock picks:

  1. BCE (BCE)
  2. CIBC (CM)
  3. Telus (T)
  4. Power Financial (PWF)
  5. National Bank (NA)
  6. Emera (EMA)
  7. Fortis Inc (FTS)
  8. Enbridge (ENB)
  9. TransCanada Corporation (TRP)
  10. Shaw Communications (SJR.B)

If you are a follower of this strategy, it would have resulted in the following changes:

  • Selling National Bank (NA), Fortis (FTS), Shaw (SJR.B)
  • Adding Scotia Bank (BNS), Canadian Utilities (CU) and Manulife (MFC)

The 2019 group is heavy in terms financials and diversification could be better.  There are 2 telcos, 4 financials, 2 pure utilities, and 2 pipeline utilities.  

For a complete portfolio, we would also need materials/resources, real estate, technology, and consumer stocks.  More on how to build a proper dividend growth portfolio here.

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 Own Implementation of BTTSX

I mentioned an in 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.

March(Q1) 2019 Dividend Income Update

 Account Dividends/year Yield
SM Portfolio $7,500 3.96%
 TFSA 1 $3,500 4.54%
 TFSA 2 $3,600 5.03%
 Non-Registered $3,300 4.42%
 Corporate Portfolio $20,600 3.73%
 RRSP 1 $7,000 2.75%
 RRSP 2 $2,700 2.37%
  • Total Invested: $1,332,522
  • Total Yield: 3.62%
  • Total Dividends: $48,200/year (+4.56%)

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.  

While going through this process for almost 2 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.

Having said that our original picks included:

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

Since inception in September 2017, using XIRR the portfolio has returned 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.

Final Thoughts

As you can see from the post, 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).

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.  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 of this 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 index ETFs for global diversification.

Even better, if you are interested in dividend investing, I’m more comfortable with building a real dividend portfolio and adding to positions with new money when available.

Disclaimer:  I own shares in some or all of the stocks mentioned in this post.  This post should be used for informational purposes only.

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16 Comments

  1. Laura on May 6, 2019 at 3:36 pm

    Thanks for sharing your returns. 11% over the last 1.5 years is great and 3% more than the index is going to add up pretty quickly.

    • FT on May 6, 2019 at 4:14 pm

      Hard to guarantee the outperformance! One of the reasons why I tend to focus on dividend income over capital gain.

  2. Sean on May 7, 2019 at 8:05 am

    Was wondering why Interpipe isn’t on this list. I’m assuming they had a dividend cut awhile back? Which site do you go to to research that?
    Thanks!

    • FT on May 7, 2019 at 9:00 am

      IPL is on the list of high yield TSX 60 stocks, but I removed due because it was a former income trust. However, these rules are not set in stone, and if you like IPL, I don’t see anything wrong with owning it.

      • Fernando on May 26, 2019 at 1:23 pm

        How do you find if a company was a former income trust?

    • Samantha on May 9, 2019 at 2:20 pm

      I also like IPL, and I’m waiting to get below $20, to buy some more shares. The dividend is 8%+ and the company is within my range of risk tolerance.

  3. Noleigh on May 11, 2019 at 3:40 pm

    Hi FT,
    Can you please explain the logic behind why you exclude former income trusts from this strategy? I understand that they may have had cuts in the past but isn’t that due to the government changes in the way income trusts are taxed. To me all companies run the risk of taxation changes and it’s not the company to blame, rather, just the current tax situation. The price of income trusts dropped substantially resulting from changes in October, 2006 and dividends dropped because of this.
    I am probably missing something big here so I’m hoping you can fill in my knowledge gaps

    Thanks,
    Noleigh

    • FT on May 12, 2019 at 9:43 am

      I believe the original thought behind cutting former income trusts was the fact that they maintained high yields when they switched to corporations. High yields can sometimes lead to dividend cuts, which is a big no-no for this strategy.

      • ExecutiveInvestor on May 16, 2019 at 1:11 pm

        Hi, what do you think about Canoe Income Trust (EIT.UN)? They have been distributing $0.10/share monthly since 2008 with an average of 8% annual return since inception (1997).
        Please share your thoughts!
        Thanks.

        • FT on May 16, 2019 at 2:34 pm

          I haven’t been following EIT.UN, I will take a look!

  4. Max on May 12, 2019 at 6:10 pm

    But it’s been years since the income trust change… could you say this is really no longer valid ( ie the company has proved it’s worth or it has changed enough to not be the company)

    • FT on May 13, 2019 at 9:14 am

      Hi Max, as I mentioned, it’s personal preference on how you tweak the rules to your own investing style. Personally, I own a small amount of IPL and would have no problem owning PPL.

  5. Fran on May 16, 2019 at 10:11 pm

    Hi FT. I have been following your blog with high interest. I was curious to know if you have tried the Dividend Capturing Strategy during your Journey ? If so, what are your opinion on that ? Thanks. Fran

    • FT on May 17, 2019 at 3:27 pm

      Hi Fran, do you mean to buy ex-dividend, then immediately sell after the dividend is paid out? I don’t see a lot of merit in this strategy because
      1: You need to pay a commission to buy and sell
      2: In addition to the dividend, I’m also interested in the long term growth of the stock.

      Have you tried this strategy? If so, how has it worked out?

      • Fran on May 17, 2019 at 8:50 pm

        Hi FT. No I haven’t tried it yet. I have watched numerous YouTube videos and read few articles on that topic. Since I am fairly new at using the Dividend Investing Strategy I was simply curious to know your opinion about this. If I ever try it, I will be more than glad to share the results. Thanks

  6. DividendStrategy.ca on July 3, 2019 at 1:26 am

    Hi, great to see other bloggers writing about the Beating the TSX method! Last year I took on the writing of the BTSX article series for the Canadian Moneysaver (where the strategy originated a little over twenty years ago by David Stanley). I created a website/blog with the real-time updated portfolio, explanations, performance history, etc. You can find it here:
    https://dividendstrategy.ca
    The question about previous income trusts comes up a lot, so I’ve written two posts recently investigating both IPL and PPL to determine whether we should start including them in the portfolio. I also recently added a complete list of TSX60 stocks ranked by dividend yield, which has been really helpful for a lot of DIY investors. Hoping this is helpful for the readers here :) ~Matt

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