Most exchange-traded funds (ETFs) have variable dividend policies, since their underlying stocks all pay different amounts at different times. That means the cash flow you get as an investor isn’t always neat or predictable.
Closed-end funds (CEFs), however, are designed with income first in mind. They often use what’s called a managed distribution policy, where the payout is the top priority. Managers can sell holdings to realize capital gains or use the return of capital to ensure investors get a consistent stream of cash.
Case in point: Canoe EIT Income Fund (TSX:EIT.UN). It pays $0.10 per share like clockwork every month, and at the current price, that translates to a 7.75% yield. Here’s why I like it as a reliable income stalwart.
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What is EIT.UN?
EIT.UN is one of Canada’s largest and oldest closed-end funds, holding a diversified mix of about 50/50 Canadian and U.S. dividend-paying stocks. Unlike a passive ETF that simply tracks an index, it’s actively managed.
The portfolio manager, Rob Taylor, selects companies bottom-up, focusing on fundamentals like cash flow, dividends, and balance sheet strength. That makes the fund a collection of hand-picked names rather than just a basket of the market’s biggest stocks.
EIT.UN quirks
As a closed-end fund, EIT.UN trades based on supply and demand rather than creating and redeeming units like an ETF. This means it can trade at either a premium or a discount to its net asset value (NAV). Right now, it trades at a slight discount, so you’re paying less than the underlying holdings are worth.
The fund also uses about 1.2 times leverage, which means for every dollar of equity, it borrows roughly 20 cents to invest more. That leverage boosts income potential but can also magnify losses during downturns.
The main drawback is cost. EIT.UN charges a 1.1% management fee, which is high compared to the rock-bottom fees of most ETFs. However, that reflects the expenses of active management and the use of leverage, both of which are central to how the fund maintains its fixed monthly distribution.
The Foolish takeaway
If you’re not actually withdrawing the monthly distribution, EIT.UN doesn’t make much sense. Reinvesting the payout adds unnecessary friction compared to cheaper, growth-focused ETFs.
But if what you want is nonstop, hands-off income, EIT.UN is one of the most reliable ways to get it, especially in a Tax-Free Savings Account, where the payout is entirely sheltered from taxes.
