Find an edge when investing in TSX 'dogs' strategy - MoneySense

Find an edge when investing in TSX ‘dogs’ strategy

Pick a favourite high-yield stock and dump your worst


Find one dividend ‘safer dog’ as overachiever and one as dog of the dogs. (Flickr)

Each January, I like to create a little challenge that adds a bit of flavour to the Safer Canadian Dogs strategy. All it takes is to pick the best and the worst of Canadian dividend stocks.

The challenge is modelled after the one I ran last year.  The goal is to build a fantasy portfolio using the 10 dividend paying stocks in the Safer Canadian Dogs list.  Each fantasy portfolio starts with an equal amount of money in each stock.  You can play along at home. All you  do is pick one of the stocks to buy and one of the stocks to sell.  After making that fateful choice, each fantasy portfolio is fixed for the year with $20,000 in the favourite stock, nothing in the one that was sold and $10,000 in each of the remaining eight.  Kudos go to the investor with the best performing portfolio.

The Winners from 2017

You can see how each of last year’s Safer Canadian Dogs fared in the table below.  (The 2017 challenge ran from January 6, 2017 to December 31, 2017 and the table shows results for that period.)

The Safer Canadian Dogs for 2017
Company Total Return
Bank of Nova Scotia (BNS) 10.12%
BCE (BCE) 8.21%
CIBC (CM) 14.81%
Emera (EMA) 8.22%
Fortis (FTS) 15.99%
National Bank (NA) 17.63%
Power (POW) 11.19%
Rogers (RCI.B) 26.59%
Shaw (SJR.B) 9.76%
TELUS (T) 12.88%
Average 13.54%
S&P/TSX Composite 7.56%
Data Source: Bloomberg, 1/6/2017 to 12/31/2017

Overall, it was a banner period for the Safer Dogs, which chalked up average returns of 13.5%.  They handily beat the market, as represented by the S&P/TSX Composite index, which climbed 7.6% over the same period.  Each and every Safer Dog beat the market.

RELATED: Are there penalties for holding dividends in a TSFA?

The top pick was Rogers with a gain of 26.6% and National Bank fared quite well with a return of 17.6%.  The worst showing came from BCE which climbed 8.2%.

I’ve been going over the contest entries from last year and no one got it quite right by buying Rogers and selling BCE.  But Brian fared the best by buying Rogers and selling Power.  Congratulations Brian!

The New Contest for 2018

It’s time to reboot the challenge.  This year the rules are the same as last year but the list of stocks has changed to reflect this week’s Safer Canadian Dogs.

The list for 2018 is composed of: the Bank of Montreal (BMO), the Bank of Nova Scotia (BNS), BCE (BCE), CIBC (CM), Emera (EMA), Fortis (FTS), National Bank (NA), Power (POW), Shaw (SJR.B), and TELUS (T).  You can find additional data on each stock in the table in the following section.

Which of these dividend stocks would you move your fantasy money from and which one would you move it to?  When you come to a decision, send me an email with the stock you want to “buy” and the one you want to “sell” to [email protected].

RELATED: Dividends explained

Send me you picks before February 1, 2018 and, please, only one entry per person.  We’re just playing for pride, and investor education, here but the person with the fantasy portfolio that gains the most from the close of January 31, 2018 through to the end of the 2018 will be sent a modest mystery reward.

Put your thinking cap on and pick a winner, and a loser, for 2018!

The Safer Canadian Dogs

Investors following the Dogs of the Dow strategy buy the 10 highest yielding stocks in the Dow Jones Industrial Average (DJIA), hold them for a year, and then move into the new list of top yielders.  The Dogs of the TSX works in the same way but swaps the DJIA for the S&P/TSX 60, which contains 60 of the largest stocks in Canada.

RELATED: How to buy dividend stocks

My safer variant of the Dogs of the TSX tracks the 10 stocks in the S&P/TSX 60 with the highest dividend yields provided they also pass a series of safety tests, such as having positive earnings. The idea is to weed out companies that might cut their dividends in the near term. Just be warned, it’s something that is often easier said than done.

The updated list of Safer Canadian Dogs is a good starting point for those who want to put some money to work.  Just keep in mind, the idea is to hold the stocks for at least a year after purchase.

Safer Canadian Dogs
Name Price P/E Dividend Yield
BCE (BCE) $57.75 17.88 4.97%
Emera (EMA) $46.34 17.42 4.88%
Power (POW) $32.29 9.78 4.44%
Shaw (SJR.B) $27.01 15.43 4.39%
TELUS (T) $46.92 22.03 4.31%
CIBC (CM) $122.42 10.85 4.25%
Fortis (FTS) $43.50 17.46 3.91%
Bank of Nova Scotia (BNS) $81.47 12.55 3.88%
National Bank (NA) $63.86 11.87 3.76%
Bank of Montreal (BMO) $102.63 12.96 3.62%
Source: Bloomberg, January 16, 2018

Notes:   Price: Closing price per share; P/E: Price to Earnings Ratio; Dividend Yield: Expected-Annual-Dividend divided by Price, expressed as a percentage

As always, do your due diligence before buying any stock, including those featured here. Make sure its situation hasn’t changed in some important way, read the latest press releases and regulatory filings and take special care with stocks that trade infrequently.  Remember, stocks can be risky.  So, be careful out there. (Norm may own shares of some, or all, of the stocks mentioned.)