What is BTSX?
BTSX is a short term for Beating the TSX. BTSX is an investment strategy developed by David Stanley. BTSX is a Canadianized version of the Dogs of the Dow strategy developed by Michael O’Higgins in his book Beating the Dow and when applied to Canadian stocks is sometimes referred to as the “Dogs of the TSX”. It is based on choosing the ten highest-yielding stocks in the index. However, index changes have required some modifications to Stanley’s approach when used in Canada.
Origin of the Strategy
The original “Dogs of the Dow” simply selected the ten highest-yielding stocks in the 30-stock Dow Jones Industrial Average and invested equal amounts in the ten. The portfolio was reconstituted once a year.
How BTSX works
- List the stocks on the TSX 60 Index by dividend yield*
- Select the top ten yielding stocks of the index provided they have a history of consistent dividend payments. Usually these will be “TURF” stocks (telecoms, utilities, REITs, and financials)**
- Purchase these equities in equal parts and hold for one year at which point the list is regenerated and the process is repeated.
Here are my 4 Steps on how to do BTSX
1. Visit Barchart.com TSX 60
2. Choose Fundamental
3. Screen to the highest Dividend Yield
4. Buy the Top 10 stocks on the list and hold it for a year
These stocks will be purchased on January 2nd and held for the year.
Why BTSX Works?
Easy to understand (clear set of rules)
Relatively easy to understand and implement. No researched needed
Low cost to implement
No need for day trading. Only 10 stocks involve and purchased in a yearly basis.
Large stable companies
The TSX 60 is an index composed of the largest companies in Canada
Purchased at good valuations
By ordering the companies by yield stocks are, by design, purchased at more favourable valuations. 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, yield increases. Thus, we end up buying shares of large stable companies when their share price is (temporarily) depressed.
High dividend yield
The average yield of the S&P/TSX is approximately 2.5%. The average yield of the BTSX strategy is approximately 5%. What this means in real terms is that a dividend-based investment strategy will produce twice the income of an index-ETF based strategy. If these yields are reinvested and added to stock market returns (assuming 5%), after 25 years $100 000 invested in an index ETF strategy will produce a $610 000 nest egg. A dividend-based strategy with an average 5% yield would produce almost $1.1 million.
History of 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. Evidence shows [link] that these companies have delivered the best returns over time. Our Beating the TSX portfolio generally contains companies with a dividend growth rate in the range of 4 – 8%.