Hounds of the Bay (Backtest)
Last Updated on June 21, 2022
Hounds of the Bay is another investment strategy that allows you to enjoy maximum dividend income. But what is Hounds of the Bay all about?
Named after the Canadian financial center, the Bay Street, Hounds of the Bay is a stock-picking strategy for selecting the highest dividend-paying stocks in the Canada stock market’s primary large-cap index (The S&P/TSX 60).
In this post, we will cover the following:
- What are the Hounds of the bay?
- What is the logic behind Hounds of the bay?
What are the Hounds of the Bay?
Hounds of the Bay is a stock-picking strategy for selecting the highest dividend-paying stocks in the Canada stock market’s primary large-cap index (The S&P/TSX 60). It derives its name from Bay Street, which lies at the heart of Toronto’s business district and is often used as a catchword for Canada’s financial industry, just as Wall Street for the US financial market.
Owing to the composition of the TSX 60 index, Hounds of the Bay tend to mostly involve a variety of global commodities and are skewed towards energy. For example, following the severe oil decline in 2014, Hounds of the Bay dramatically underperformed in 2014.
The 2022 Hounds of Bay
|MFC||Manulife Financial Corporation||5.66%|
|TRP||TC Energy Corp||4.90%|
|PPL||Pembina Pipeline Corp||4.87%|
|AQN||Algonquin Power & Utilities Corp||4.75%|
|BNS||Bank of Nova Scotia||4.68%|
|CM||Canadian Imperial Bank of Commerce||4.61%|
|SLF||Sun Life Financial Inc||4.41%|
What is the logic behind Hounds of the Bay?
Just like Dogs of the Dow, Hounds of the Bay is based on the premise that blue-chip companies do not alter their dividend to reflect trading conditions; thus, the dividend is a measure of the average worth of the company. Companies with a high dividend relative to stock price are near the bottom of their business cycle, and as such, their stock price is likely to increase faster than companies with low dividend yields.
Hounds of the Bay – does it work? Backtest
Unfortunately, we don’t have access to Canadian stock data and thus we are reliant on backtests from other sources. The data is scarce, but there is academic research that confirms that the Hounds of the Bay strategy has worked pretty well, just like Dogs of the Dow. However, the effect seems to have diminished over the last couple of decades.