2020 was a tough year for dividend investors and those of us who use the BTSX method took a beating. Fortunately, the tides have turned and Canadian blue chip dividend-paying stocks are back on track. In fact, as of July 1, the 2021 BTSX portfolio is up 30.7% compared to 18.6% for the benchmark TSX60 index. It’s time for a BTSX mid-year update.
In my 2020 annual update six months ago, I had three messages for Canadian dividend investors:
- Don’t be blinded by short term numbers
- Beating the TSX tends to shine after bad years
- Dividend investors have the luxury of focusing on dividend income rather than stock prices
Now that we’re midway through 2021, let’s see how we’re doing on these points.
1. Put short term results in perspective
Every sound investment strategy will have periods of underperformance. Everybody knows this. Fewer possess the fortitude to endure the hard times. I think dividend investors, by and large, are a confident and committed bunch, but 2020 may have tested you.
With a 2020 annual return of negative 10% and underperforming the index by 15%, no one could blame you for indulging a little self-doubt. I hope you read the update, reassessed your portfolio, and stayed the course. For those who did, BTSX stocks have rewarded them handsomely.
Every single stock is up on the year so far with total return on the portfolio (including six months worth of dividends) of 30.7%. That’s a 12.1% absolute advantage over the TSX60 benchmark’s total return.
But, as always, it’s the long term data that matters. Since the rebound in Canadian dividend-paying stocks, here is what the 1, 3, 5, 10, 20, and 30 year data looks like:
Once again, the BTSX method is outperforming the benchmark in every time frame. To be clear, however, BTSX has years when it underperforms. The following chart can help us manage our expectations. 2021 is at the top, 1989 is at the bottom; green lines indicate years when BTSX underperformed.
Perhaps the most meaningful way to view this data for long term investors, however, is to show how $10 000 dollars would have grown over the past 32 years using BTSX versus the benchmark index.
As you can see, $10 000 invested in BTSX thirty-two years ago would be worth $313 975 now, versus only $165 509 for the benchmark (total returns).
2. BTSX shines after bad years
2020 was Beating the TSX’s second worst year ever. The worst? – 1999. In that year, BTSX underperformed the index by 37%. Horrible, yes, but if one had invested $100 000 using the BTSX method starting right after this horrendous performance, by now it would have grown to $915 000 vs. only $485 000 if one had chosen an index fund. Beating the TSX has an incredible track record of bouncing back after bad years.
I wrote this six months ago, but it bears repeating: A good investment plan is not one without periods of underperformance, but one that is durable enough to recover and outperform. BTSX fits the bill.
3. Dividend investors have the luxury of ignoring stock prices
Regardless of whether stock prices have gone up or down in any given year, dividend investors enjoy a special luxury: we can ignore the noise and focus on dividend income. As I described in this post, it’s the dividend payments that matter.
New BTSX investors started 2021 with a very generous 6.13% yield. The cherry on top is that, as usual, several of these quality companies have raised their dividends even further in the last six months. This means that if you’re lucky enough to have $1 000 000 invested in the portfolio, your annual dividend income has grown from $61 300 to $62 600 – an incredible rate of return to start, plus an extra $1300 just for sitting tight. Are bond investors enjoying that kind of inflation protection?
Beating the TSX doesn’t always beat the index, but it has shown incredible resilience to reward investors who keep a level head during tough times. As hard as it was, I view 2020 as a lesson in investing with three key takeaways:
- Have a plan and stick to it; BTSX bounces back
- Ignoring short term volatility is both our greatest challenge and our greatest advantage
- Focus on dividend income, not stock prices
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