Ever growing income. Effective. This is the Beat the TSX strategy (BTSX).
What is Beat the TSX (BTSX)?
In a nutshell, one of the best investing strategies to employ in Canada.
BTSX an investment strategy developed by David Stanley.
If you haven’t heard of BTSX, you should have. It is a Canadianized version of the “Dogs of the Dow” strategy developed by Michael O’Higgins in his book Beating the Dow.
BTSX is based on choosing the 10 highest-yielding stocks in the TSX 60 index. Like the original “Dogs of the Dow” strategy, the BTSX portfolio is to be reconstituted once a year.
How does the BTSX approach work?
- Find the TSX 60 Index and sort by dividend yield.
- Select the top-10 yielding stocks of that index provided they have a history of consistent dividend payments. Usually these will be “TURF” stocks (T = telecoms, U = utilities, R = REITs, and F = financials). Avoid companies with any recent dividend cuts, stopping their dividends, etc.
- Purchase your 10 stocks in equal parts and hold each stock for one year, at which point your top-10 list is reconstituted and repeated the following year.
- Repeat annually.
Now, that may feel like a bit of portfolio buying and selling but given the TSX 60 index is just 60 stocks, the blue-chip companies of Canada, but the top-10 list actually doesn’t change very much year over year.
Why does the BTSX strategy work?
A number of reasons but here are some top ones that come to mind:
Clear and rules-based. Relatively easy to understand and implement. No researched needed!
Low cost to implement. No need for trading, there are only 10 stocks involved and purchased on a yearly basis.
Large stable companies. The TSX 60 is an index composed of the largest companies in Canada, blue-chippers that tend to make money for shareholders year-after-year.
Purchased at good valuations. By buying the companies with a higher yield, you are seeking value. This is because of the relationship between dividend yield and stock price. Because yield is calculated as the dividend/stock price, as the stock price declines, your yield increases. So, via BTSX, you are essentially buying shares of large stable companies when their share price is (temporarily) depressed.
Higher dividend yield for income. The average yield of the S&P/TSX is approximately 3%. The average yield of the BTSX strategy is usually closer to 5%. This means in real money terms, this BTSX strategy will produce twice the income of an index-ETF based strategy.
History of juicy dividend raises! The only thing better than a strong company that pays a good dividend is a strong company that pays a good growing dividend.
Where can you learn more about BTSX???
For more information, dedicated to this approach, visit Matt Poyner’s site Dividend Strategy.
His site is a must-follow for Canadian dividend investors.
BTSX stocks 2021:
BTSX stocks 2022:
Images from Dividend Strategy.
You can read about how I invest in most of these stocks as well in this pillar post: how I built my dividend portfolio for income.
Even if you decide not to invest in individual stocks (no problem there!), consider buying and holding and adding to low-cost ETF XIU for a collection of the top Canadian stocks to own all the time.
XIU happens to be one of my favourite ETFs to own for dividend income and growth.