Dogs of the TSX Dividend Stock Picks (January 2024 Update)

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 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 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%!)

  1. Enbridge (ENB)
  2. BCE (BCE)
  3. TC Energy Corp (TRP)
  4. Algonquin Power and Utilities Corp (AQN)
  5. Bank of Nova Scotia (BNS)
  6. Telus (T)
  7. Pembina Pipeline (PPL)
  8. Emera (EMA)
  9. CIBC (CM)
  10. Power Corp (POW)

If you’re curious, here’s what the Beating the TSX strategy had us picking in 2023:

  1. Algonquin Power and Utilities Corp (AQN)
  2. Enbridge (ENB)
  3. TC Energy Corp (TRP)
  4. Bank of Nova Scotia (BNS)
  5. BCE (BCE)
  6. CIBC (CM)
  7. Power Corp (POW)
  8. Pembina Pipeline (PPL)
  9. Manulife (MFC)
  10. Telus (T)

For further context, here’s the old the MDJ 2022 BTTSX picks:

  1. Enbridge (ENB)
  2. Pembina Pipeline (PPL)
  3. BCE (BCE)
  4. TC Energy Corp (TRP)
  5. Manulife (MFC)
  6. Algonquin Power and Utilities Corp (AQN)
  7. Power Corp (POW)
  8. Suncor (SU)
  9. Bank of Nova Scotia (BNS)
  10. 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:

  1. Enbridge (ENB)
  2. Scotia Bank (BNS)
  3. BCE (BCE)
  4. TC Energy Corp (TRP)
  5. Telus (T)
  6. Manulife (MFC)
  7. TC Energy Corp (TRP)
  8. Power Corp (POW)
  9. Pembina Pipeline (PPL)
  10. 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

4.46%

6.54%

3.66%

5.78%

74.83%

17.10

Canadian National Railway Co

CNR.TO

Industrials

27

1.93%

3.28%

7.76%

11.67%

36.82%

20.45

Canadian National Resources

CNQ.TO

Energy

22

4.70%

21.95%

36.22%

23.03%

47.32%

13.25

Telus Corp

T.TO

Communications

19

6.28%

7.25%

-15.42%

6.73%

251.01%

41.50

Stella Jones

SJ.TO

Materials

18

1.15%

10.20%

10.18%

12.70%

20.33%

15.28

Emera

EMA.TO

Utilities

17

5.93%

4.04%

23.41%

4.66%

75.03%

11.20

National Bank

NA.TO

Finance

13

4.09%

7.32%

9.57%

10.28%

42.05%

11.06

Alimentation Couche-Tard

ATD.TO

Business

13

0.85%

7.78%

16.63%

22.42%

12.22%

19.55

TD Bank

TD.TO

Finance

12

5.05%

6.55%

-1.40%

8.03%

68.32%

14.44

Brookfield Corp

BN.TO

Finance

11

0.79%

11.97%

-22.46%

-6.13%

45.27%

66.27

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Taking Dividend Investing to The Next Level

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Dogs of the TSX FAQ

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.

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FT

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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Ronaldo
1 year ago

Article could use some clarity ; which is final list for building starting now a dogs of the tsx prtfl and which is his personal, seems quite a diff and some of title work does not clearly differentiate if he is talking exclusively about the beating the tsx ie dogs of the dow and his pure dividend pritfolio = left scratching my head…..

Ronaldo
1 year ago
Reply to  Ronaldo

last should day “dogs of the tsx”

zasid
2 years 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
3 years 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
3 years 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
3 years 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
3 years ago
Reply to  Kev

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