Why does BTSX work?

Why is the BTSX strategy so powerful?

Large stable companies

  • The TSX 60 is an index composed of the largest companies in Canada
  • Many (most?) of the companies that end up on the BTSX have what Warren Buffet would call a “wide economic moat” – their profitability is protected by a distinct and sustainable competitive advantage.  The large Canadian banks are a great example as they are protected from competition by government legislation. Similarly, the telecoms like BCE and Telus have nearly untouchable oligopolies.

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%.