Beat the TSX

What is Beat the TSX (BTSX)?

Ever. Growing. Income. That is what BTSX is. 

In a nutshell, one of the best investing strategies to employ in Canada if you want to own individual stocks.

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?

  1. Find the TSX 60 Index and sort by dividend yield.
  2. 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. 
  3. 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.
  4. 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:

  1. Clear and rules-based. Relatively easy to understand and implement. No stock researched needed!
  2. Low cost to implement. No need for trading, there are only 10 stocks involved and purchased on a yearly basis.
  3. 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. 
  4. 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.
  5. 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. 
  6. 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 growing dividend. 

Where can you learn more about BTSX???

For more information, dedicated to this approach, visit Matt Poyner’s site Dividend Strategy.

BTSX stocks 2024:

BTSX 2024

BTSX stocks 2023:

BTSX 2023

BTSX stocks 2022:

BTSX Stocks 2022

BTSX stocks 2021:

BTSX Stocks 2021

Images from Dividend Strategy, thanks Matt. 

Do I use Beat the TSX (BTSX) stocks in my portfolio?

You bet. 

To a degree…

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.

However, I tend to avoid selling assets so I don’t really subscribe to the set rules of this approach. Not many people / DIY investors I know do since BTSX is about owning and turning over 10 stocks. Probably not that great for diversification benefits to reduce portfolio risk.

Even if you decide not to invest in individual stocks (no problem there!), consider buying and holding and adding to low-cost ETF XIU.

XIU happens to be one of my favourite Canadian ETFs for dividend income and growth.

Further Reading:

How I built my dividend portfolio

AND

Top Canadian Dividend ETFs

BTSX Results?

Amazing, over time. 

BTSX Results

Image with thanks again to DividendStrategy.ca.

BTSX Summary

You don’t have to buy BTSX stocks. Hardly.

But I think owning such companies, among others in your portfolio for growth, put some wealth-building power in your favour. 

As you own or consider owning some BTSX stocks like I do some closing thoughts:

  1. BTSX stocks while great are limiting. While these stocks may continue to shine, you might be missing out on other stocks that offer growth if you only focus on BTSX stocks. That’s a potential downside and therefore risk to your portfolio. A good stock portfolio is not just 10 stocks. Diversify beyond that IMO. 
  2. Some BTSX stocks may cut their dividends. This doesn’t happen every year, but it can happen, if you focus solely on higher-yielding stocks in XIU. Be careful with yields!
  3. The collection of annual BTSX stocks don’t always beat the benchmark…but over many investing years it should. So, while Beating the TSX every year is not going to happen owning some of the top-60 stocks in Canada using XIU as a screening tool should help your portfolio deliver meaningful income and growth over time. Some years could be better, or worse, than others. Expect it. Hence, you need to have a multi-decade investing timeframe. 

Let me know your thoughts on the BTSX strategy and what questions you might have about it. 

Happy to answer!

Mark

 

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