Dogs of the TSE

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Re: Dogs of the TSE

Post by Shakespeare » 03 Jun 2014 10:57

David Stanley eliminates former income trusts when he chooses his Dogs portfolio.
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Re: Dogs of the TSE

Post by like_to_retire » 03 Jun 2014 10:58

Peculiar_Investor wrote:Many have subsequently cut their distributions/dividends, so current yields most likely reflect
And there's the rub. It hasn't been that long, and as such, David Stanley removes them from his top ten list as they don't have enough of a track record paying dividends as corporations to be trusted (pardon the pun). ;)

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Re: Dogs of the TSE

Post by AltaRed » 03 Jun 2014 10:59

I think it is good to know because in some cases, habits die hard. CPG is an example of management behaving like PacMan having little regard for share dilution, high dividend yield, DRIP discounts, etc, etc. It is as if equity is as cheap as it was in the income trust days. The key question that remains is whether one trusts management of this type enough to believe the dilution is ultimately accretive.
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Re: Dogs of the TSE

Post by Peculiar_Investor » 03 Jun 2014 11:16

I only have a passing familiarity with the Dogs of the TSX strategy and realize that the income trust era required some re-formulation of the rules.

Given the current discussion, I have a follow-up question. How long do you exclude former income trusts, particularly those that began as corporations, then converted to an income trust and have converted back? I certainly understand excluding them during the income trust era and shortly afterwards, but it has now been 3+ years since the income trust era ended. I tried Google and cannot find (at least publicly), the basis for Stanley's rules about former income trusts.

Penn-West can be used as a specific example. They were a corporation, then became an income trust and have reverted back to a corporation. Surely one can make the argument that a track record of dividend payout ratio as a corporation exists.

Is a better exclusion criteria an unsustainable or significantly changing dividend payout ratio?
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Re: Dogs of the TSE

Post by Shakespeare » 03 Jun 2014 11:48

The underlying problem is that the 60 is too big. I have reviewed the history at Beating the TSX (BTSX) - finiki, the Canadian financial wiki

The original Dogs strategy was on the Dow 35. It was then switched to the TSE 35 by David Stanley, who did significant backtesting. But the 35 was terminated, so David switched to the Dow Jones Titans 40. That too was terminated, leaving the 60.

But the TSX capitalization falls off too quickly for the 60 to only represent "blue chip" stocks. The switch to the 60 clearly gave a 10 Dogs that was dominated by energy trusts or former energy trusts. So David eliminated them.

There are alternative screening procedures that could be used - for example, maximizing sectoral weighting at 2 or cutting off the bottom 30 cap-weighted stocks. Nonetheless, it appears that the original Dow Dogs strategy can not be applied without modification to the 60 stocks.

Incidentally, I have maintained a link to the now-defunct Dow Titans 40 screen. The remaining 37 components are at

% Change - Price Reports | Globe Investor[Titans 40 remnants]
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Re: Dogs of the TSE

Post by like_to_retire » 03 Jun 2014 11:59

Peculiar_Investor wrote:Given the current discussion, I have a follow-up question. How long do you exclude former income trusts,
Yeah, that's a great question, and one I've asked myself many times, as I have been following a sector modified Dogs experiment since 2011. It's worked nicely so far.

David Stanley seems game to answer any questions about his filter criteria in all his Canadian MoneySaver articles and always supplies his email address at DavidS5209@aol.com. Maybe you could ask him when he intends to include former trusts.

Myself, I'm feeling slightly vindicated with regard to my sector modification of Stanleys' rules, since his list of ten this year included two materials sector stocks that my modification screened out. Namely IMG (Iamgold Corp) and ABX (Barrick Gold Corp). IMG suspended its dividend, and ABX reduced its dividend from $0.20 to $0.05 in September.

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Re: Dogs of the TSE

Post by pmj » 03 Jun 2014 12:16

For stocks that have converted from income trusts, typically the graphs at Google Finance do not show any pre-conversion data. OTOH, the graphs at GlobeInvestor and Yahoo Finance typically do include pre-conversion data. If a Google graph starts sometime in the last few years, the stock is potentially an ex-trust.
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Re: Dogs of the TSE

Post by ig17 » 08 Jun 2014 13:54

Why does the S&P/TSX 60 exclude some of Canada’s biggest stocks?
Think the S&P/TSX 60 is Canada’s 60 biggest companies? Think again …
  • Great-West Lifeco Inc., at about $29-billion in market capitalization, is the biggest Canadian public company not in the TSX 60.
  • TransAlta Corp., at $3.5-billion in market cap, is the smallest company in the TSX 60. But it ranks 110th in the S&P/TSX composite.
  • Twelve of the 60 biggest Canadian companies, by market cap, aren’t in the TSX 60, including Alimentation Couche-Tard Inc., Fairfax Financial Holdings Inc., and CI Financial Corp.
  • Canadian Tire Corp., with a market cap of $8.5-billion, is the 60th-largest company in the TSX composite. But there are 15 smaller companies behind it in the TSX 60.

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Re: Dogs of the TSE

Post by SQRT » 08 Jun 2014 15:23

You would have to ask S&P what their criteria for that particular index is. There are usually several criteria and usually some degree of balance is seen as beneficial. Also, putting new names in would mean old names come out, and index managers usually don't like to change them too often.
When I was working at one of the big banks we fought for years to get into a major international index as we were the only CDN big bank not in while the National Bank was in. Didn't make sense but took a decade to address the issue.

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Re: Dogs of the TSE

Post by parvus » 08 Jun 2014 21:21

Which is why indexing is problematic, rather than a slam-dunk. There is active management on the part of the index providers and such active management, as Jeremy Siegal once demonstrated, may be detrimental to buy-and-hold investors. Taking the 1957 constituents of the S&P 500, they performed better than the new constituents, demonstrating, to my mind that, despite 80% coverage of the tradeable U.S. equity market -- with only minor contributions to be expected from mid and small-cap stocks not otherwise included -- that markets are not as efficient as advertised.

A total return index solves this -- at least for the U.S. But it is difficult to apply elsewhere given the absence of decades of trading data and liquidity. Compounding this, at least for S&P Dow Jones indexes, is the issue of "representativeness."

My criticism is that, absent a total market approach, an indexer of necessity leans towards "glamour" stocks.

Which is good enough for many people. And given their time constraints, the best fit.
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Re: Dogs of the TSE

Post by ig17 » 08 Jun 2014 21:56

This is Dogs of the TSE thread. I should clarify why I posted the article here.

Dogs strategy chooses 10 highest yielding stocks in the blue chip index. As G&M article points out, TSX 60 index leaves out a number of Canada's biggest stocks.

Some of the stocks that are left out look a lot "bluer chip" to me than some of the stocks that are included. For example, I think that Great-West Life is a true Canadian blue chip. TransAlta is not.

Those of us who use the Dogs strategy should probably adjust our screening criteria accordingly.

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Re: Dogs of the TSE

Post by NormR » 08 Jun 2014 22:17

parvus wrote:A total return index solves this -- at least for the U.S. But it is difficult to apply elsewhere given the absence of decades of trading data and liquidity. Compounding this, at least for S&P Dow Jones indexes, is the issue of "representativeness."
Did you mean equal-weighted index rather than total return index? (The later just includes dividend reinvestment.)

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Re: Dogs of the TSE

Post by Shakespeare » 08 Jun 2014 22:24

Some of the stocks that are left out look a lot "bluer chip" to me than some of the stocks that are included
That's why it's useful to compare to the Top 10 of the survivors (currently 37) of the Dow Jones Titans 40.

% Change - Price Reports | Globe Investor
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Re: Dogs of the TSE

Post by parvus » 08 Jun 2014 23:11

NormR wrote:
parvus wrote:A total return index solves this -- at least for the U.S. But it is difficult to apply elsewhere given the absence of decades of trading data and liquidity. Compounding this, at least for S&P Dow Jones indexes, is the issue of "representativeness."
Did you mean equal-weighted index rather than total return index? (The later just includes dividend reinvestment.)
Oops. My apologies. I meant total market index. Fraidian slip. :oops:
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Re: Dogs of the TSE

Post by Shakespeare » 11 Jun 2014 21:54

Just for the heck of it, I did a TSX60 sort by cap, took the top 6030, and sorted by yield. This is closer to the original Dow Dogs strategy than other approaches. This is what I got:

Code: Select all

Ticker	Market Capitalization	Yield
CPG	$ 17,818,729,246	6.17%
BCE	$ 39,098,370,275	4.91%
RCI.B	$ 22,478,826,810	4.19%
NA	$ 15,081,898,673	4.16%
CM	$ 38,523,666,743	4.13%
BMO	$ 49,530,927,763	4.06%
POT	$ 33,534,076,450	3.90%
TRP	$ 35,626,728,760	3.81%
RY	$ 108,004,307,296	3.79%
SLF	$ 23,312,520,000	3.76%
I'm now working on a Lotus macro using a Globeinvestor data file, since Yahoo does not have accurate yields for Canadian stocks. (Yes, I know I should do it in Excel....)

Edited to fix error.
Last edited by Shakespeare on 12 Jun 2014 00:00, edited 1 time in total.
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Re: Dogs of the TSE

Post by DenisD » 11 Jun 2014 23:51

Shakespeare wrote:top 60
Do you mean the top 30 or 40?

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Re: Dogs of the TSE

Post by Shakespeare » 11 Jun 2014 23:59

Sorry, top 30 of the TSX 60, by market cap, then subsorted by yield. The original Dogs of the Dow had 30 stocks.
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Re: Dogs of the TSE

Post by DenisD » 12 Jun 2014 01:20

Shakes' post above has inspired me to do a little work too. For the past month, I've been signed up at portfolio123.com to refresh my US stock screens. This time, I opted for the $99/month package. I can backtest back to the beginning of 1999 with Canadian or US stocks. Tonight, I decided to look at the Canadian dogs.

I start with all Canadian stocks except for income trusts and select the top 40 by market cap. I'm looking at 2 strategies. The first buys the top 40 companies with the highest dividend yield. The second buys the top 40 companies with the highest shareholder yield. Shareholder yield is dividend yield plus percent reduction in shares over the past year. The following table shows the top 40, top 10 dividend yield dogs and top 10 shareholder yield dogs at the beginning of 1999 and yesterday.

Code: Select all

                                                             MktCap Top 40
             Jan 2/99                                                                      Jun 10/14
Ticker       Name                                     MktCap                  Ticker       Name                                      MktCap
NT:CN        Nortel Networks Corp                     50,822                  RY:CN        Royal Bank of Canada                       108,515
BCE:CN       BCE Inc.                                 36,903                  TD:CN        Toronto-Dominion Bank (The)                101,275
RY:CN        Royal Bank of Canada                     23,624                  BNS:CN       Bank of Nova Scotia (The)                   86,173
TRI:CN       Thomson Reuters Corp                     22,004                  SU:CN        Suncor Energy Inc.                          64,148
VO.1:CN^00   Seagram Co Ltd (The)                     20,240                  CNR:CN       Canadian National Railway Co                55,776
BNS:CN       Bank of Nova Scotia (The)                16,608                  CNQ:CN       Canadian Natural Resources Ltd              50,642
BMO:CN       Bank of Montreal                         16,275                  BMO:CN       Bank of Montreal                            49,818
TD:CN        Toronto-Dominion Bank (The)              15,984                  IMO:CN       Imperial Oil Ltd                            46,016
CM:CN        Canadian Imperial Bank of Commerce       15,789                  VRX:CN       Valeant Pharmaceuticals International Inc   45,619
BBD.B:CN     Bombardier Inc                           14,964                  ENB:CN       Enbridge Inc                                42,293
IMS.2:CN^00  Imasco Ltd                               14,469                  BCE:CN       BCE Inc.                                    39,231
PWF:CN       Power Financial Corp                     11,992                  MFC:CN       Manulife Financial Corp                     38,542
ABX:CN       Barrick Gold Corp                        11,205                  CM:CN        Canadian Imperial Bank of Commerce          38,446
IMO:CN       Imperial Oil Ltd                         10,681                  TRP:CN       TransCanada Corp                            35,712
T:CN         TELUS Corp                               10,387                  HSE:CN       Husky Energy Inc                            35,377
TRP:CN       TransCanada Corp                         10,316                  CP:CN        Canadian Pacific Railway Ltd                34,285
GWO:CN       Great-West Lifeco Inc                     9,704                  POT:CN       Potash Corporation of Saskatchewan Inc      33,310
CP:CN        Canadian Pacific Railway Ltd              9,634                  TRI:CN       Thomson Reuters Corp                        31,299
AL.Z:CN^07   Alcan Inc.                                9,447                  GWO:CN       Great-West Lifeco Inc                       29,425
L:CN         Loblaw Companies Ltd                      9,052                  BAM.A:CN     Brookfield Asset Management Inc             29,368
NNC.1:CN^00  Newbridge Networks Corp                   8,242                  MG:CN        Magna International Inc.                    25,627
NCT:CN^99    Newcourt Credit Group Inc                 7,934                  T:CN         TELUS Corp                                  25,476
WN:CN        George Weston Ltd                         7,839                  CVE:CN       Cenovus Energy Inc                          24,757
CNR:CN       Canadian National Railway Co              7,640                  PWF:CN       Power Financial Corp                        23,888
MG:CN        Magna International Inc.                  7,475                  SLF:CN       Sun Life Financial Inc                      23,496
POW:CN       Power Corp Of Canada                      7,201                  RCI.B:CN     Rogers Communications Inc.                  23,009
TGO.1:CN^00  Teleglobe Inc                             7,113                  G:CN         Goldcorp Inc.                               21,208
SHC.1:CN^07  Shell Canada Ltd                          6,739                  ABX:CN       Barrick Gold Corp                           20,638
FFH:CN       Fairfax Financial Holdings Ltd            6,464                  ECA:CN       Encana Corp                                 19,014
IGM:CN       IGM Financial Inc.                        5,581                  CPG:CN       Crescent Point Energy Corp                  17,898
POT:CN       Potash Corporation of Saskatchewan Inc    5,342                  ATD.B:CN     Alimentation Couche-Tard Inc                16,779
ENB:CN       Enbridge Inc                              5,097                  NA:CN        National Bank of Canada                     15,076
BUS.2:CN^07  Laidlaw International Inc                 5,079                  AGU:CN       Agrium Inc.                                 14,314
SU:CN        Suncor Energy Inc.                        5,064                  PPL:CN       Pembina Pipeline Corp                       14,203
TRZ.2:CN^06  Trizec Properties Inc.                    4,820                  TCK.B:CN     Teck Resources Ltd                          13,699
BCH:CN^01    Biochem Pharma Inc                        4,785                  POW:CN       Power Corp Of Canada                        13,666
T.1:CN^99    Telus Corp-Old                            4,697                  L:CN         Loblaw Companies Ltd                        13,619
PCA.Z:CN^09  Petro-Canada                              4,407                  IGM:CN       IGM Financial Inc.                          13,045
PDG.2:CN^06  Placer Dome Inc                           4,388                  FM:CN        First Quantum Minerals Ltd                  12,927
ECA:CN       Encana Corp                               4,354                  SJR.B:CN     Shaw Communications Inc.                    12,393

                                                             Yield Dogs
Ticker       Name                                      Yield                  Ticker       Name                                      Yield
TD:CN        Toronto-Dominion Bank (The)                5.16                  CPG:CN       Crescent Point Energy Corp                    6.14
BNS:CN       Bank of Nova Scotia (The)                  5.12                  BCE:CN       BCE Inc.                                      4.89
TRP:CN       TransCanada Corp                           4.99                  GWO:CN       Great-West Lifeco Inc                         4.18
PCA.Z:CN^09  Petro-Canada                               3.97                  NA:CN        National Bank of Canada                       4.17
T:CN         TELUS Corp                                 3.35                  PWF:CN       Power Financial Corp                          4.17
ENB:CN       Enbridge Inc                               3.26                  IGM:CN       IGM Financial Inc.                            4.16
CM:CN        Canadian Imperial Bank of Commerce         3.16                  CM:CN        Canadian Imperial Bank of Commerce            4.13
SHC.1:CN^07  Shell Canada Ltd                           3.10                  RCI.B:CN     Rogers Communications Inc.                    4.09
IMO:CN       Imperial Oil Ltd                           3.01                  SJR.B:CN     Shaw Communications Inc.                      4.06
BMO:CN       Bank of Montreal                           2.85                  BMO:CN       Bank of Montreal                              4.04

                                                             SH Yield Dogs
Ticker       Name                                    SHYield                  Ticker       Name                                      SHYield
IMO:CN       Imperial Oil Ltd                           7.18                  T:CN         TELUS Corp                                    8.87
IMS.2:CN^00  Imasco Ltd                                 5.38                  MG:CN        Magna International Inc.                      7.32
TD:CN        Toronto-Dominion Bank (The)                5.11                  AGU:CN       Agrium Inc.                                   6.65
CP:CN        Canadian Pacific Railway Ltd               4.99                  POT:CN       Potash Corporation of Saskatchewan Inc        6.10
BNS:CN       Bank of Nova Scotia (The)                  4.65                  TRI:CN       Thomson Reuters Corp                          5.95
TRP:CN       TransCanada Corp                           4.55                  SU:CN        Suncor Energy Inc.                            4.93
VO.1:CN^00   Seagram Co Ltd (The)                       3.88                  CM:CN        Canadian Imperial Bank of Commerce            4.74
PCA.Z:CN^09  Petro-Canada                               3.82                  BCE:CN       BCE Inc.                                      4.71
T.1:CN^99    Telus Corp-Old                             3.44                  TCK.B:CN     Teck Resources Ltd                            4.68
T:CN         TELUS Corp                                 3.14                  BMO:CN       Bank of Montreal                              4.62
For each strategy, I did a rolling backtest. The rolling backtest runs the screen every week since the beginning of 1999 and holds the selected stocks for one year. I don't think there is an allowance for fees or slippage. Among other things, it returns the average percent return of those 754 runs. I ran each strategy with 5, 10, 15 and 20 stocks. The following table shows the average percent returns of each run compared with the TSX. The TSX return is not total return. The screen returns are total return. They have some total return indexes for the US but not for Canada.

Code: Select all

             #Pos   Return   Excess
TSX                    6.5          Not total return
Yield           5     14.8      8.3
               10     14.0      7.5
               15     13.7      7.1
               20     12.8      6.3
SHYield         5     16.6     10.1
               10     14.6      8.1
               15     14.0      7.4
               20     13.2      6.7
Both strategies handily beat the index. And the shareholder yield strategy beats the dividend yield strategy by a small amount. Of course, this is just the beginning of the comparison. And the screens could be "improved" substantially.

The data should be reasonably good. But they've only had it for a few months. So, no doubt there are a few glitches. In fact, I can see a few glitches in the above tables. :wink:

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Re: Dogs of the TSE

Post by Shakespeare » 12 Jun 2014 09:32

It appears the only ex-trust in the Top 30 by market cap is CPG.

Code: Select all

Ticker	Market Capitalization	Yield
RY	$ 108,004,307,296	3.79%
TD	$ 100,411,928,000	3.44%
BNS	$ 85,956,710,000	3.62%
SU	$ 64,956,364,200	2.08%
CNR	$ 55,676,992,000	1.48%
CNQ	$ 50,499,628,800	1.95%
BMO	$ 49,530,927,763	4.06%
IMO	$ 46,575,565,050	0.95%
VRX	$ 45,326,286,296	--
ENB	$ 42,007,050,000	2.77%
BCE	$ 39,098,370,275	4.91%
CM	$ 38,523,666,743	4.13%
MFC	$ 38,179,680,000	2.52%
TRP	$ 35,626,728,760	3.81%
HSE	$ 35,431,148,036	3.33%
CP	$ 34,484,194,000	0.71%
POT	$ 33,534,076,450	3.90%
TRI	$ 31,469,379,274	3.75%
BAM.A	$ 28,900,090,079	1.49%
MG	$ 25,960,998,533	1.41%
T	$ 25,448,510,486	3.72%
CVE	$ 24,533,692,700	3.27%
SLF	$ 23,312,520,000	3.76%
RCI.B	$ 22,478,826,810	4.19%
G	$ 21,402,971,950	2.48%
ABX	$ 20,801,006,200	1.22%
ECA	$ 19,184,490,000	1.18%
CPG	$ 17,818,729,246	6.17%
NA	$ 15,081,898,673	4.16%
AGU	$ 14,264,640,000	3.30%
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Re: Dogs of the TSE

Post by Shakespeare » 15 Jun 2014 11:56

Here is David's response, posted with permission:
Hi Keith-I have now had a chance to look in some detail at the material you mentioned on FWF. I had seen it before and planned to come back to it, but the Ontario election (I worked both the advance polls and on polling day) and the aftermath of the December ice storm (we lost quite a few trees than we are still cleaning up) interfered. Let me set down some points that I think are important.
Yes, the TSX/S&P 60 index is a particularly feeble if one is looking for a Canadian blue-chip index. Your history of the indices that I have gone through is correct, except I started with the TSE 35, the Canadian blue-chip index at the time. All the Dow 30 work was done by Michael O'Higgins; I merely 'adapted' (plagiarized) his work to the Canadian milieu. At the time it struck me unusual why the U.S. could get by with 30 stocks for a blue-chip index while we needed more here in Canada. As you note, the situation got/gets progressively worse. Some FWF contributors seem to want to put as favourable an interpretation as possible on the fact that the number of stocks in Canada's blue-chip index continues to climb, but I take a darker view. First, the methodology used to select is 'proprietary'; why? Why is it so necessary to keep that process secret? Second, I fully expect that a great deal of good accrues to a company that is selected for the blue-chip index since index funds and ETFs must then purchase shares. Putting those two facts together means that I would not at all be surprised to learn that some underhanded shenanigans take place in selecting members for the bloated S&P/TSX 60 index.
It is very obvious to me that there are not 60 companies in this country that qualify for blue-chip status. I have, of course, documented all this in the pages of the Canadian MoneySaver.
So, the question remains, why do I continue to use the S&P/TSX 60 index for my Beating The TSX portfolio? The answer is that, faced with two potential evils I have selected the one that I think is less damaging. What is more important, to start with a true blue-chip index or to be totally impartial in the selection process? To me it is the latter. In order to rectify the first situation I would have to construct my own blue-chip index. No matter what is said, that is not an easy job. It goes beyond just selecting the stocks with the highest market-cap (using non-market-cap methodology produces its own problems). The Dow 30 is not just the top 30 U. S. stocks by market-cap. One must, at least, make some effort to produce an index representative of the stock market as a whole. This is more difficult in Canada since there are obvious gaps in certain sectors. Also, one must avoid any suspicion that the selection process is subjective (as I have suggested may be the case with the current Canadian blue-chip index).
So, I have elected to use the S&P/TSX 60 index, warts and all, for my work. But, by doing this, I can be assured that the selection processes (the top 10 yield stocks, discounting former income trusts) is totally objective with no human input from me. Is this a perfect situation? Of course not, but it seems the best solution as of now. By the way, removing the former income trusts does go partway in making the index more reflective of Canadian blue-chip companies.
I do take your point about substituting the old Dow Titans index, but this has its own problems in that it is no longer maintained and will, I suppose, stay forever the way it is now constituted. This doesn't allow for any changes and I think that might be as bad as having too many constituents. The bottom line is that however I struggle to keep my work totally objective and exclude flawed human judgment there are decisions that have to be made and one can only do what one thinks is best at the time. Feel free to use any of this you like in FWF. Regards, Dave
Note that the finiki history correctly includes the TSE 35.

The bottom line remains that the TSX60 is a flawed index for this approach and all measures to fix that are imperfect.
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Re: Dogs of the TSE

Post by Peculiar_Investor » 15 Jun 2014 12:00

Thanks Keith, and David, for following up and continuing to educate us :thumbsup: :thumbsup:
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DenisD
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Re: Dogs of the TSE

Post by DenisD » 16 Jul 2014 14:13

last year DenisD wrote:This year the Dogs include 2 gold companies.
The results are in for 2013/14. The 2 gold companies and TA are losers as the TSX 60 beats BTSX 19.5% to 10.1%. BTSX still outperforms significantly over the long term.

This year there are no gold companies and, still, no former income trusts.

like_to_retire
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Re: Dogs of the TSE

Post by like_to_retire » 16 Jul 2014 15:38

DenisD wrote:The results are in for 2013/14. The 2 gold companies and TA are losers as the TSX 60 beats BTSX 19.5% to 10.1%. BTSX still outperforms significantly over the long term.

This year there are no gold companies and, still, no former income trusts.
Yep, and it's the very situation that I am trying to avoid with my own BTSX-ltr.

As I commented last year, "The difference this year (Nov 2013) in starting yield between the standard BTSX and the BTSX-ltr is 0.24%. A small price to pay for risk control. It removes the chance of ending up with overweight financials and also removes volatile sectors like Materials. For example, the BTSX this year has two Material sector stocks in it's 10 picks, and soon after the start date (Barrick Gold) chopped its dividend. My modification is an attempt to avoid that type of volatile stock."

Over the BTSX year, IMG suspended its dividend, and ABX reduced its dividend from $0.20 to $0.05. This is the problem with allowing any sector, and sector overloading into the BTSX. You can have some very bad years. I can hopefully avoid those situations with my BTSX-ltr, and only pay a small price for that risk control. The BTSX got trounced this year, as the index has been on a tear. I hope to take much less of a beating when my anniversary comes due in November. We'll see.

ltr

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Re: Dogs of the TSE

Post by like_to_retire » 13 Nov 2014 14:52

Time to report on my Dogs of the TSX portfolio for this year (2014). I will refer to it as BTSX-ltr. Previous years reports are here for 2013 and here for 2012 if anyone's interested.

I've now started my fourth year, and the Total Compounded BTSX-ltr Return for three years is now 44.89% versus the S&P/TSX 60 at 31.37%. That trumps the S&P/TSX 60 index over that period by 13.5 percentage points as shown on the graph below.

After 3 years, the Average Annual Total Return for the BTSX-ltr is now 13.16% versus S&P/TSX 60 at 9.52%. An increase of 38.2% over the index.

[attachment=0]Graph TSX60 vs BTSX-ltr 3 years.PNG[/attachment]

The standard David Stanley BTSX reports this years Average Annual Total Return to be 12.47% with the index at 9.89% over 28 years. A 26.08% increase over the index. I only hope to do as well over that long a term, but so far the results are falling in line with the BTSX.

This years results (Nov 2013-Nov 2014) were reasonable, but unfortunately, for the first time (and just like the standard David Stanley BTSX this year), I did not beat the index. Close, but no cigar, mostly due to the dividend cut and subsequent share price drop of TransAlta. TransAlta lost -23.5% over the year, where most of the other sectors fared well over their respective index when examining share price.

For this year, the BTSX-ltr Total Return was a very acceptable 10.52% (6.20% for capital gains, 4.32% for dividend yield), while the index returned 13.71%. I do feel good that the difference in the return against the index was far better than the standard BTSX this year, which showed that my original motivation for modifying the standard BTSX proved worthwhile after such a short experimental time of just three years. As I reported in June of this year in this post, where I commented that I'm feeling slightly vindicated with regard to my sector modification of Stanleys' BTSX rules, since his list of ten stocks this year included two materials sector stocks that my modification screened out. Namely IMG (Iamgold Corp) and ABX (Barrick Gold Corp). IMG-T suspended its dividend, and ABX-T reduced its dividend from $0.20 to $0.05 in September.
And again this year, the BTSX contains three materials stocks (30% of the BTSX) of which the top contender is Kinross Gold. Oy-vey, I'm going to make a bold prediction that it will disappoint and not be a positive contributor to the cause for the year. Materials, especially metals, are volatile, and IMO are for selective and thoughtful trading, and not something to hang your full year BTSX hat on, with its confining start and stop dates.

As reported by David Stanley this year in Canadian Money Saver magazine, the standard BTSX returned 9.37 percentage points less than the TSX60 index. Wow, that's quite a spread. Note, this year, the BTSX-ltr returned only 3.19 percentage points less than the index.
Remember though, that Stanley's BTSX runs from June to June, and the BTSX-ltr runs from Nov to Nov, so I don't do any meaningful comparisons (and I don't really want to since it's the TSX60 index that I compare against and am ultimately attempting to beat).

As far as my modification to the standard BTSX is concerned, I usually take a small hit to the dividend payout, but really don't mind, as I feel it's a small price to pay for risk control. It removes the chance of ending up with overweight of any one sector (think financial) and also removes volatile sectors like Materials that can temporarily jump into (and out of) the top ten list (as evidenced in this last years poor BTSX results). My modification is an attempt to avoid the very situation that occurred with the BTSX this last year.

The filter screening remains the same for BTSX-ltr and is carried out each year on the anniversary date.

Filter 1 - Sort the S&P/TSX 60 by dividend yield from high to low. (Same as BTSX)
Filter 2 - Eliminate the former income trusts from the sorted list. (Same as BTSX)
Filter 3 - Eliminate any US$ dividend payers. (BTSX-ltr)
Filter 4 - Choose the highest 10 dividend payers using the following sectors (sector types as per XIU definitions) and invest equal dollar amounts: (BTSX-ltr)
. Two Financial Bank.
. Two Financial non-Bank.
. Two Energy.
. Two Telecom.
. One Utility.
. One Consumer Discretionary.

Then reconstitute once a year.

Examining the BTSX-ltr portfolio over this last year, the starting yield-on-cost Nov 2013 was 4.41%, and ended the year in Nov 2014 with a yield-on-cost of 4.34% (and a yield-on-market of 4.09%). The yield-on-cost, which would normally increase over the year, lost ground after taking a large hit from TransAlta's dividend cut, but made up ground with 10 dividend increases from the other participants.

With respect to next years BTSX-ltr list, there were a few changes required to start the new year (Nov 2014-Nov 2015).
CVE.TO (Cenovus Energy Inc) replaced TRP.TO (TransCanada Corporation) for one of the the energy sector participants and RCI.B (Rogers Communications Inc.) replaced T.TO (Telus Corporation) for one of the telecom sector. I also had to add more pesky TA.TO (TransAlta Corporation) shares to shore up the single utilities sector entry (will this dog ever stop biting?).

I try to comply with the rule of starting each year with an equal 10% slice for each of the 10 stocks, but I restrict myself to block purchases and sales (100 share boundaries), with the result that each slice isn't exactly 10%, but it's close enough for me, keeping in mind that the market changes the allocations by itself fairly quick. My software does continually track the percentage return difference between my actual slice percentages versus a perfect ten slices of 10%, and it's surprisingly close by year end, as sometimes I'm winning and sometimes I'm losing, but the results that I post at year end are the actual returns that I experience with the portions that I actually own. The returns I post aren't theoretical - I'm eating my own cooking. It would be quite easy to track a perfect theoretical portfolio of shares, but you have to be realistic if you own these shares in real life. It would be silly to 'break the block' and add or subtract a few shares each anniversary to shore up the slice percentages, not to mention what it would do to tax inefficiency in an open account, but I do my best to keep it close. I do use the actual dividends received through the year for each stock for the posted results (as opposed to the standard BTSX that uses prorated yield from the average annual expected dividends).

I also don't calculate the returns with dividends re-invested (as the Index TRIV does [Total Return Index Value]), instead simply use the share price increase plus dividends received as my total return (same as the standard BTSX). Yes, it gives the Index TRIV a bit of an advantage, but I'm confident enough to spot the Index a few points ;) . To maintain a standard BTSX portfolio or any derivation of it, takes only an hour or two of my time each year, so for those that don't want to own individual stocks versus an ETF Index because it takes a lot of work, it just ain't so in this case. I'm just pleased not to have to sort out the tax T3's for ETF's at year end that I am now able to avoid. With a BTSX, the taxes are simple, and the stock management is easy - you just follow the simple filter rules and repeat once a year. Heck, even I can do it.

The BTSX-ltr is just part of my overall strategy to beat the index. I also maintain a CORE portfolio that compliments the sector strategy of the BTSX-ltr. The CORE stocks by themselves enjoyed a 25.62% Total Return over the same Nov - Nov time period. It handily trounced the index (index @ 13.71%), and when the CORE and BTSX-ltr are considered as one portfolio of stocks, it also beat the index with a Total Return of 16.13% (beating the index by 2.42 percentage points), which of course is my ultimate goal.

As David Stanley says: "Let's see what happens in the coming year".



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Graph TSX60 vs BTSX-ltr 3 years.PNG

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Re: Dogs of the TSE

Post by AltaRed » 13 Nov 2014 15:05

Very thoughtful and well written post. Thank you for sharing. You should copyright your 'index' and sell it to BMO for a new ETF :wink:
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