Dogs of the TSX Dividend Stock Picks (2022 Update)

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 2022 picks)

The concept behind this strategy is to systematically select undervalued dividend-generating companies each year. In our case, we’ll be taking the 60 largest stocks on Toronto Stock Exchange (also known as the TSX 60), sorting them by dividend yield, and then examining the top 10 positions annually (removing income trusts and stocks that have cut dividends).

You’ll notice that it has a lot in common with my Best Canadian Dividend Stocks 2022 List that I update monthly.

While 2022 isn’t shaping up to be a world-beater for any of the world’s stock markets, our Dogs of the TSX investing strategy has held up far better than most portfolios.  This is especially true if you were invested in tech darlings like Zoom, Netflix, or Meta.

Top Canadian Dogs of the TSX Pick for 2022: Algonquin Power and Utilities Corp (AQN)

Last year’s Dogs of the TSX list resulted in Enbridge being the top pick – and it came through big time for us.  With a capital gain of over 21%, and a dividend yield that was over 8% when we wrote the article last year, we realized a total gain of almost 30% on the revenue all star last year!

As we begin 2022, we see that Enbridge is still at the top of the Dogs of the TSX scoreboard.  While I don’t think the Canadian pipeline is quite as “can’t miss” as it was last year, the 6.26% yield is nothing to sneeze at.  Just don’t expect the same price gains as last year.

My favourite “Dog of the TSX” for 2022 is Algonquin Power and Utilities Corp (AQN).  While Canadian utilities are generally quite boring regulated affairs, Algonquin is a bit unique in that it has really invested substantially into green energy.  That said, the vast majority of the company’s earnings come from stodgy old power deals in Canada and the USA – which pay out no matter what the new green acquisitions do.  

At a time when so many investors are predicting a market top and moving to more defensive sectors, I’m shocked that AQN continues to see its price compression.  It’s now trading at 15x earnings, with a juicy 4.77% dividend yield.  It appears to me that Algonquin is suffering from being labeled as a “green stock” and getting sold off as a consequence of overbought markets in 2020 and 2021.  

At any rate, the company has proven that they are capable of making successful acquisitions in renewable energy, and at their core, they are still a well regulated monopoly that churns out dependable profits.

Over the first half of the year, Algonquin Power is slightly up YTD, and their dividend yield is cruising along at a robust 5%+. While most years that wouldn’t be a result to champion, in 2022 we’ll definitely take it! 

With most analysts believing this stock still has room to appreciate, I remain confident that the company can inflate its utility prices right alongside cost inflation, and keep pumping out those profit. Their shift to green energy looks to be more and more visionary the longer the war in Europe continues.

I’ve conducted a lot of my own research on this stock, but also relied heavily on the advice and tools provided by Dividend Stocks Rock.  

DSR not only provides excellent written advice, but also a ton of free webinars, and ideal tools for analyzing both the Canadian and American dividend markets. Read my DSR review for an in-depth look at just why I’m such a big fan of what fellow Canadian Mike Heroux has put together.

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. 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 financial stocks in the portfolio, and the next could be utilities.

BTTSX Dividend Stock Picks For 2022

Now, for what you’ve been waiting for, the 2022 BTTSX stock picks.  Before we get into the 2022 picks, let’s take a look at last year.

As we head into 2022, here are 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 2022 group contains 2 telcos, 2 financials, 1 pure utility, and 4 pipeline utilities (or “mid-stream” energy companies), and 1 natural resource stalwart. 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 2022.

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 2022 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

FTS.TO

Utilities

48

3.47%

6.68%

-0.99%

6.10%

79.85%

23.67

ENB.TO

Energy

26

6.39%

6.37%

73.64%

9.52%

117.23%

18.78

CNR.TO

Industrials

26

2.02%

3.76%

-7.90%

10.40%

35.57%

21.28

T.TO

Communications

18

4.70%

5.76%

-1.75%

6.68%

103.38%

22.95

EMA.TO

Utilities

15

4.28%

6.15%

-7.71%

5.24%

128.82%

26.79

NA.TO

Finance

12

4.42%

8.14%

13.60%

5.43%

31.37%

8.61

ATD.TO

Business

12

0.89%

9.55%

19.94%

18.74%

12.30%

15.98

AQN.TO

Utilities

11

5.35%

21.53%

-0.24%

8.79%

165.34%

26.26

RY.TO

Finance

11

4.29%

5.67%

9.99%

5.92%

39.02%

10.36

ITP.TO

Business

3

2.18%

12.40%

-2.65%

2.78%

57.14%

28.14

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Taking Dividend Investing to The Next Level

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DSR is managed by fellow blogger Mike from the Dividend Guy Blog since 2013, and his results during this time has been nothing short of amazing. Read our detailed DSR review, or sign up now by clicking the button below to get 33% off by using the code MDJ33.

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.  

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 as we head into 2022) but a responsible investor knows that diversifying risk is essential to long-term success. Using an all-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.

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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Ronaldo
1 month 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 month ago
Reply to  Ronaldo

last should day “dogs of the tsx”

zasid
1 year 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
2 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
2 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
2 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
2 years ago
Reply to  Kev

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