Nothing sucks more than a dividend cut – especially if you’re relying on that income. That’s why if you’re going to buy dividend stocks for income, you need to watch the payout ratio.
This metric measures how much of a company’s earnings are paid out as dividends. A high payout ratio can be a red flag, as it suggests dividends might not be sustainable if earnings decline.
Using an exchange-traded fund (ETF) for dividends can help, since diversification reduces the risk of any single company cutting its payout. However, ETF distributions can fluctuate, making them less predictable.
But there’s another option – the Canoe EIT Income Fund (TSX:EIT.UN). This is a closed-end fund (CEF) designed to pay a fixed $0.10 per share distribution every month, no matter what.
Here’s why EIT.UN is the perfect investment if your top priority is steady dividends paid every month.
What is EIT.UN?
EIT.UN is an income-first closed-end fund that splits its portfolio 50% Canadian stocks, 50% U.S. stocks, all selected for quality and income generation.
Its monthly distribution has been locked at $0.10 per share for over a decade, with payouts funded through stock dividends, realized capital gains, and return of capital.
It pays like clockwork – the ex-dividend date is usually on the 22nd of the month, with distributions hitting investor accounts on the 15th of the following month.
Beyond income, EIT.UN has also been a strong total return performer. With reinvested distributions, it has delivered an annualized 12.2% return over the past 10 years.
Risks to be aware of
Since EIT.UN is a CEF, its market price can trade above (premium) or below (discount) its net asset value (NAV).
As of February 6, EIT.UN trades at $15.35, while its NAV is $15.90 – meaning it’s currently at a discount. You should only consider buying when it trades at a discount, as paying a premium means you’re overpaying relative to the value of the underlying holdings.
Another key risk is that EIT.UN uses leverage to boost returns. While this can enhance gains, it also increases risk in volatile markets. This CEF is more volatile than your average exchange-traded fund (ETF).
Leverage isn’t cheap either. Compared to low-cost ETFs, EIT.UN comes with a hefty 2.1% management expense ratio (MER) – something to keep in mind when weighing its benefits against its costs.
