Most exchange-traded funds (ETFs) have variable dividend insurance policies, since their underlying shares all pay totally different quantities at totally different instances. Which means the money move you get as an investor isn’t all the time neat or predictable.

Closed-end funds (CEFs), nonetheless, are designed with revenue first in thoughts. They usually use what’s known as a managed distribution coverage, the place the payout is the highest precedence. Managers can promote holdings to understand capital features or use the return of capital to make sure buyers get a constant stream of money.

Working example: Canoe EIT Earnings Fund (TSX:EIT.UN). It pays $0.10 per share like clockwork each month, and on the present value, that interprets to a 7.75% yield. Right here’s why I prefer it as a dependable revenue stalwart.

What’s EIT.UN?

EIT.UN is one in every of Canada’s largest and oldest closed-end funds, holding a diversified mixture of about 50/50 Canadian and U.S. dividend-paying shares. In contrast to a passive ETF that merely tracks an index, it’s actively managed.

The portfolio supervisor, Rob Taylor, selects corporations bottom-up, specializing in fundamentals like money move, dividends, and stability sheet power. That makes the fund a group of hand-picked names relatively than only a basket of the market’s largest shares.

EIT.UN quirks

As a closed-end fund, EIT.UN trades primarily based on provide and demand relatively than creating and redeeming items like an ETF. This implies it might probably commerce at both a premium or a reduction to its web asset worth (NAV). Proper now, it trades at a slight low cost, so that you’re paying lower than the underlying holdings are value.

The fund additionally makes use of about 1.2 instances leverage, which implies for each greenback of fairness, it borrows roughly 20 cents to speculate extra. That leverage boosts revenue potential however may also enlarge losses throughout downturns.

The primary disadvantage is price. EIT.UN fees a 1.1% administration payment, which is excessive in comparison with the rock-bottom charges of most ETFs. Nevertheless, that displays the bills of energetic administration and using leverage, each of that are central to how the fund maintains its mounted month-to-month distribution.

The Silly takeaway

Should you’re not really withdrawing the month-to-month distribution, EIT.UN doesn’t make a lot sense. Reinvesting the payout provides pointless friction in comparison with cheaper, growth-focused ETFs.

But when what you need is nonstop, hands-off revenue, EIT.UN is likely one of the most dependable methods to get it, particularly in a Tax-Free Financial savings Account, the place the payout is fully sheltered from taxes.