The Canoe EIT Income Fund (TSX: EIT.UN) has been offering investors a wonderful yield averaging 10% since 2010. At the current price of $11.58 a unit, the current annual dividend yield is a whopping 10.36%, giving investors great passive income in their portfolios.
The fund is one of Canada’s largest diversified closed-end investment funds. It is actively managed, and the manager invests in a diversified portfolio of income-generating and capital growth-oriented securities listed primarily on the TSX. The fund is also designed to maximize distributions and net asset value (NAV) for the benefit of its unitholders.
A fixed monthly payout of $0.10 per unit is dished out to investors, and this has been the case since August 2009. There are signs of greater market demand for the fund’s units at the moment. The units usually trade at an average 15% discount to NAV; however, currently, the discount has narrowed down to 9.36%.
Talking of experience, the Canoe EIT Income Fund was created back in 1997, so it will be celebrating its 20th anniversary in August this year. It survived the 2008-2009 global financial meltdown, and it’s currently going strong. The manager seems competent too.
Most noteworthy, the manager usually offers annual redemption at a price that is 95% of NAV for a set number of units, so investors get some capital gains, too. Just recently in December 2016, units accepted for the 2016 voluntary cash redemption were redeemed at a price of $12.29 per unit, which was 95% of the average NAV per unit based on the three business days preceding the redemption date of December 8.
If we were to speculate a bit, there is great strength in the fund’s strategic asset allocation right now that could make it outperform the S&P/TSX Composite Index again this year. It benefited from its underexposure to the gold sector in 2016 and is overweight financials, energy, and industrial stocks, where growth is expected for 2017.
It’s also underweight interest rate–sensitive stocks as the manager believes that the market is transitioning toward a more normalized growth and interest rate environment that will favour cyclical sectors and pressure valuations on rate-sensitive securities.
Going forward, cash flows seem adequate to cover payouts, and the fund’s asset allocation seems strategic enough to increase NAV net of distributions for the foreseeable future. The +10% dividend yield seems secure and dependable.
One thing to note is that payouts are dependent on the underlying dividends and yields of securities the fund is invested in. With a 60% exposure to Canadian equity, 29.3% exposure to U.S. equity, and just 3.3% international equity, the exposure to the North American market risk is quite significant. However, we are not likely to see a collapse in the Canada and U.S. market anytime soon.
