Can you beat the TSX?

I just read about a stock picking system called Beating the TSX. Before you scoff, it’s a dividend oriented system for selecting the best of the TSX60 – so it’s conservative. It’s similar to the Dogs of the Dow system. It works like this:

  • Start with the list of all companies in the TSX60
  • Discard any that do not have a long history of paying a consistent dividend (e.g. former income trusts)
  • Select the ten stocks with the highest dividend
  • Repeat annually

That’s it. Pretty simple. The originator, David Stanley, claims a 24 year record of consistently beating the TSX. A system like this is completely compatible with my Investment Policy, which makes it intriguing. I set up a screen to identify suitable stocks:

  • Select stocks on the TSX
  • Increase the Market Capitalization threshold until there are only 60 stocks in the screen ($8B in this case)
  • Filter to exclude any stocks with a Dividend Coverage of less than 100%
  • Increase the Dividend Yield threshold until there are only 10 stocks in the screen (4.41% in this case)

The results were as follows:

  • Sun Life Financial Inc
  • Bce Inc
  • Great-West Lifeco Inc
  • Power Financial Corp
  • Canadian Imperial Bank Of Commerce
  • Bank Of Montreal
  • Power Corp Of Canada
  • Royal Bank Of Canada
  • Igm Financial Inc
  • Husky Energy Inc

A backtest on this screen shows an annual return of 12.6% (TSX was -3.1%) and a five-year total return of 80.8% (TSX was 2.4%). This is very good for a conservative portfolio.

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