If your goal is to turn your Tax-Free Savings Account (TFSA) into the bedrock of your passive-income strategy, the first step is deciding how much income you want.
If that target is $900 per month, the next step is working backward from the monthly payout of whatever investment you choose. That sounds simple, but most dividend stocks pay quarterly, some pay monthly but fluctuate their distributions, and building a portfolio of only monthly payers can concentrate your risk into a handful of companies.
My preferred alternative is a monthly income fund. There are a few on the TSX, but the one with the longest track record and most consistent results is the Canoe EIT Income Fund (TSX: EIT.UN). Here’s why.
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What is EIT.UN?
EIT.UN is a closed-end fund (CEF), meaning it has a fixed number of units that trade on the stock market. Unlike an exchange-traded fund (ETF), new units aren’t created or redeemed each day, so its market price can drift above or below its net asset value (NAV).
Right now, the fund trades at a small discount, with a recent market price of $15.46 versus a NAV of roughly $15.75. That discount lets buyers acquire its underlying portfolio for slightly less than its intrinsic value.
The fund holds about 40 stocks, split roughly 50/50 between Canada and the U.S, and is actively managed. Management can also use up to 1.2 times leverage, which allows the fund to boost returns by borrowing modestly against its assets. This amplifies gains during strong markets, though it can also magnify losses during downturns.
The defining feature of EIT.UN is its fixed $0.10 monthly distribution. That payment is a blend of dividends, capital gains, and return of capital, making it much easier to hold inside a TFSA to avoid tax reporting. Based on its recent price of $15.46, the fund yields roughly 7.75%.
Despite being marketed primarily as an income product, its long-term performance has been strong. With distributions reinvested, EIT.UN has delivered a 10-year annualized total return of about 12.6%, which is competitive with broad-market Canadian equity funds.
How many shares for $900 per month
EIT.UN pays a fixed $0.10 per unit each month. To generate $900 per month, divide your target income by the monthly payout:
$900 ÷ $0.10 = 9,000 units
At a recent share price of $15.46, buying 9,000 units would cost this:
9,000 × $15.46 = $139,140
So, you’d need to invest about $139,140 to generate $900 per month, tax-free, inside a TFSA.
Remember that the $900 monthly payout is before tax, which is exactly why keeping EIT.UN inside a TFSA makes sense. Outside a registered account, you would be dealing with a mix of dividend income, capital gains, and return of capital—all of which can complicate tax reporting.
