If your goal is monthly income in a Tax-Free Savings Account (TFSA) without selling shares, most TSX-listed dividend stocks won’t cut it since they pay quarterly. Sticking to monthly payers narrows your options mainly to real estate investment trusts (REITs) and royalty trusts.
But if you’re open to owning a fund, you can get both diversification and reliable monthly payouts—either from equities or bonds. If growth potential is what you’re after, equity-focused funds are the better bet. Here’s a look at one TSX exchange-traded fund (ETF) and one closed-end fund (CEF) worth considering.
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Dividend ETF
Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX: VDY) is designed to track high-yielding Canadian dividend stocks, offering a simple way to generate steady income while still participating in equity market growth.
VDY’s portfolio is heavily weighted toward the financial sector, with banks and insurance companies making up the bulk of holdings. That concentration can be a drawback for diversification, but it’s hard to ignore the dividend reliability of Canada’s largest financial institutions.
The fund pays a monthly distribution and currently offers a 3.67% 12-month yield that’s attractive compared with broad-market Canadian ETFs. Since it’s passively managed, fees are low at 0.22% per annum, keeping more cash in investors’ pockets.
Income CEF
Canoe EIT Income Fund (TSX: EIT.UN) is one of Canada’s largest and oldest closed-end funds, built to deliver monthly income. Unlike an ETF, it operates with a fixed pool of capital and can trade at a premium or discount to its net asset value (NAV).
The fund pays $0.10 per unit every month, which equates to a 7.76% yield, making it a popular choice among retirees and income-focused investors. Its portfolio is split about evenly between Canadian and U.S. equities, with a focus on dividend-paying blue chips across sectors like energy, financials, and industrials.
The fund also uses moderate leverage to enhance yield, which boosts income potential but can increase volatility during market downturns. While the 1.1% management fee is higher than that of typical ETFs, investors often accept the trade-off in exchange for its dependable monthly payout.
The Foolish takeaway
Both VDY and EIT.UN pay monthly, with VDY’s distributions fluctuating based on portfolio income, while EIT.UN’s payout is fixed. Each is among the most dependable options in its segment, and held inside a TFSA, the income can be withdrawn or reinvested without any tax consequences, unlike in a non-registered account. Monthly dividend funds like VDY and EIT.UN make it easy to generate a reliable cash flow inside a TFSA.
