Canadian income investors looking to make stable passive-income streams from diversified investment portfolios could potentially earn 8.7% annual dividend yields and expect to handsomely beat the Canadian stock market’s average returns, as measured by the S&P/TSX Composite Index.
Canoe EIT Income Fund (TSX:EIT.UN) has been an outperforming dividend stock over the past 27 years, and it could continue doing so while paying investors monthly dividends.
Total returns on the Canoe EIT Income Fund have historically exceeded the TSX’s gains over nearly three decades, and the stock’s current 8.7% dividend yield could provide a strong cushion to new income investment returns for longer.
Canoe EIT Income Fund: A consistently outperforming TSX dividend stock
The Canoe EIT Income Fund is a closed-end mutual fund established in August 1997 that has generated top performance and satisfied investors’ income cravings for 27 years. The actively managed fund seeks to maximize monthly income distributions and generate capital appreciation, and it has delivered market-beating returns.
A $10,000 invested at the fund’s inception, with consistent dividend reinvestment, could have grown to more than $119,000 today. A similar investment in the broader TSX could have increased your capital to about half that much, or $61,000.
The fund has been fired up lately. Its strong capital gains and consistent monthly dividends during the past decade helped triple investors’ capital. The TSX failed to double investors’ capital during the same period.
Diversified, high-quality income investment
Canoe EIT Income Fund spreads its $2.7 billion in assets under management across several income-producing investments. Actively managed by Canoe, an employee-owned professional investment firm with more than $10 billion in assets under management, the fund is a modern-day success story about active portfolio management for stable income generation and capital growth.
Income-oriented investors gain wide international diversification with 51.3% of Canoe EIT’s assets in U.S. stocks, 43.4% in Canadian equities, and 5.3% of assets in foreign investments in United Kingdom and Swiss holdings. Although the portfolio is slightly tilted towards financial sector stocks, which comprise a 27.2% weight in the portfolio, energy stocks (15.9%), industrials (15.5%), and consumer discretionary stocks (12.1%) are well represented. Other sectors make up the remainder of EIT.UN holdings.
Most noteworthy, the income fund uses a bottom-up approach to finding investment ideas. Its widely experienced management digs deep into individual stocks to find great investment ideas with the most potential to deliver desired portfolio outcomes. The approach, which is similar to the Foolish investment approach, has a high potential to improve portfolio quality as it tries to avoid companies with weak business prospects or deteriorating fundamentals.
That said, active management is expensive, and EIT.UN has a management expense ratio of 2.13%.
Should you buy the high-yield dividend stock?
Investors seeking high-yield monthly passive income could buy Canoe EIT Income Fund and expect to receive $0.10 per unit every month, which yields a whopping 8.7% annually. The dividend stock has paid and maintained a flat monthly distribution since August 2009, so payouts could be maintained at this level for longer.
Given consistent dividend reinvestment, the fund’s 8.7% yield could double your money in just over eight years, using the Rule of 72, a rule of thumb for estimating how long it takes to double one’s capital given an expected return. Any capital gains could shorten the time frame. A tax-advantaged account like the Canadian Tax-Free Savings Account could help returns compound tax free.
Further, investors bullish on U.S. stocks may gain significant American exposure through Canadian investment and receive dividends in Canadian dollars to eliminate currency risks associated with directly holding foreign stocks.
