Portfolio Strategies

2 Income Products for Your Retirement

One of the biggest challenges when planning for retirement is creating a dependable income stream that balances safety, flexibility, and long-term growth.

Fortunately, Canadian investors have access to a variety of income-generating strategies. This post explores two proven approaches: Laddered Bond ETFs & GIC Ladders and Dividend Stocks.

Each serves a distinct role in a well-diversified retirement portfolio.

Remember, they are just two of 20 retirement income products I analyzed in a comprehensive guide. The guide categorizes each option by complexity and suitability for retirees.

Whether you’re in the Go-Go, Slow-Go, or No-Go phase, this guide can help you find the right income solution.

Download the Guide Now to Get a Review of 20 Income Products

Laddered Bond ETFs & GIC Ladders

What Are They?

A laddered bond ETF is a fund that invests in a series of bonds with staggered maturity dates, typically across 1 to 5 years. As bonds mature, proceeds are reinvested automatically, maintaining a balanced maturity ladder.

Similarly, a GIC ladder involves purchasing Guaranteed Investment Certificates with staggered maturities—often one yearly from 1 to 5 years. As each GIC matures, the capital and interest are rolled into a new 5-year term, preserving the ladder structure.

How do They Generate Income?

Both products earn income through regular interest payments. The principal can be reinvested or withdrawn upon maturity, depending on your needs. Bond ETFs offer more liquidity, as they can be sold anytime, while GICs are typically locked in unless you choose redeemable options.

Pros

Balance between income and capital preservation.
Laddering smooths out interest rate risk.
GICs are CDIC-insured (within limits) for added protection.

Cons

GICs may be locked in and non-redeemable.
Bond ETFs are exposed to market risk and may lose value if rates rise.
Interest income is tax-inefficient in non-registered accounts.

Tax Considerations

Interest income is fully taxable. To minimize the tax impact, it is best held within tax-sheltered accounts such as TFSAs or RRSPs.

Who Is It Best For?

This strategy is ideal for retirees in the Slow-Go or No-Go phase who prioritize predictable income and capital protection. GICs appeal to those seeking safety, while bond ETFs offer liquidity and flexibility for those following a systematic withdrawal plan.

Common Mistakes to Avoid

Choosing long-term GICs without understanding redemption terms.
Assuming bond ETFs are “risk-free” like GICs.
Failing to reinvest matured capital, weakening the laddering effect.

From GICs to REITs: A Complete Guide to Retirement Income in Canada

Canadian Retirees Guide to Income-Producing Investments Cover.

This free guide reviews 20 income-focused products. In the one-page summaries, we highlight the pros and cons, common mistakes to avoid, and who should use them.

We also created a rating system to highlight the difference between each product. The idea is to provide you with as much information as possible so you can make the right choice for your situation.

While there is no free lunch in finance, there are multiple ways to reach your retirement goals.

Download the Complete Guide to Retirement Income Products to discover which fits your retirement phase best.

Dividend Stocks

What Are They?

Dividend stocks are shares of companies that distribute part of their profits as dividends—often quarterly or monthly. Canadian dividend-paying stocks with consistent dividend increases signal strong fundamentals, reliable cash flow, and prudent management.

Understand how to find the most reliable dividend stocks by reading about the dividend triangle.

How do They Generate Income?

Dividend payments offer a recurring source of income. Investors may take the dividends in cash or reinvest them for compounding growth. A well-constructed dividend portfolio can deliver monthly or quarterly income with potential for annual increases.

Pros

Tax-efficient income thanks to the Canadian dividend tax credit.
Potential for dividend and capital growth over time.
Helps offset inflation through dividend increases.

Cons

Dividends are not guaranteed—cuts can occur in downturns.
Subject to market volatility.
Requires time, interest, and some financial knowledge to manage effectively.

Tax Considerations

Eligible Canadian dividends are taxed at a lower rate than interest income in non-registered accounts, making dividend stocks a strong candidate for taxable portfolios.

Who Is It Best For?

Dividend stocks are best suited for retirees in the Go-Go or Slow-Go phases who are comfortable with market exposure. This approach rewards those seeking rising income and portfolio growth. Even novice investors can manage this strategy effectively with tools, newsletters, or professional support.

Common Mistakes to Avoid

Chasing high yields without assessing dividend safety.
Overconcentration in one sector (e.g., banks, energy).
Ignoring stock valuation when buying.

We have covered some other income products in the Dividend Guy Blog podcast episode below.

Final Thoughts: A Solution for All Retirement Seasons

Both laddered bond strategies and dividend stocks can play an essential role in your retirement plan.

Bond ladders provide stability and predictable cash flow, while dividend stocks offer growth potential and tax advantages. Choosing between them—or using a mix of both—depends on your comfort with risk, need for liquidity, and long-term income goals.

By understanding the trade-offs and aligning them with your retirement phase, you can build a resilient portfolio that supports your lifestyle—through all seasons of retirement.

Ready to build a retirement income plan that fits your lifestyle?

From simple GIC ladders to advanced income strategies, the Canadian Retirees’ Guide to Income-Producing Investments covers 20 income-generating products with pros, cons, and tax insights for each.

👉 Get your free copy of the complete guide now and take the guesswork out of retirement planning.

Canadian Depositary Receipts (CDRs): Smart Shortcut or Investment Illusion?

Imagine being able to invest in Amazon, Apple, or Microsoft in Canadian dollars—without opening a U.S. account or worrying about exchange rates.

Welcome to the world of Canadian Depositary Receipts (CDRs), a unique financial product tailored for Canadian investors who want access to big-name U.S. companies without the hassle of the U.S. dollar.

But before you jump in thinking CDRs are the ultimate shortcut, let’s take a closer look.

Are they the perfect solution?
Or are there limitations you need to know before clicking “Buy”?

Let’s explore what CDRs are, how they work, and whether they belong in your portfolio.

What Are CDRs and Why Are Canadians Interested?

CDRs are like the Canadian cousin of ADRs (American Depositary Receipts).

But instead of giving U.S. investors access to foreign companies, CDRs let Canadian investors buy fractional shares of U.S. companies—right on the Canadian market and in Canadian dollars.

They’re issued by CIBC and traded on Cboe Canada (formerly the NEO Exchange). You don’t need a U.S. brokerage account, and there’s no need to convert your CAD to USD. You log in to your brokerage, search for the CDR ticker (like AAPL.NE for Apple), and buy in Canadian dollars.

CDRs are especially appealing for two reasons:

Currency hedging: CDRs protect you from USD/CAD fluctuations—your returns aren’t affected if the loonie drops in value.
Fractional investing: Since you’re buying a slice of a U.S. share, you can invest in companies like Amazon or Microsoft for just $30–$40 CAD per share.

Sounds convenient, right? It is—but there’s more to the story.

What You Gain and What You Might Miss

Pros of CDRs

Invest in U.S. giants without buying USD
Lower share price makes big names accessible
Currency fluctuations are mostly neutralized
Dividends are paid in Canadian dollars
No special tax rules if held in an RRSP

But, of course, there are a few limitations you should know about.

The Not-So-Obvious Downsides

You miss out when the U.S. dollar gains value. Since 2021, the USD has appreciated by about 10% against the CAD. If you had held Amazon’s U.S. stock instead of the AMZN CDR, you’d have seen a 10% boost in your returns just from currency alone.
Only a subset of U.S. companies are available as CDRs. Many strong dividend-paying U.S. stocks—especially those favored by income investors—aren’t included.
They’re just fractions. Buying a CDR is like buying a slice of pizza when you want the whole pie. Sure, you can buy more over time, but you’re still tied to fractional dividend payouts and limited voting rights.

Do You Get the Dividend?

Yes! If the company pays a dividend, CDR holders receive it proportionally.

Instead of receiving the full dividend per share (like $0.62/share from Microsoft), you get the same yield (e.g., 0.85%) on the CAD value of your investment. It’s all paid out in Canadian dollars—no conversion or withholding tax if held in an RRSP.

One note of caution: If you hold your CDRs in a TFSA, the dividend is still subject to a U.S. withholding tax, even though the shares are bought in CAD.

Is it Really that Hard to Buy US Stocks?

This is where I push back on the “CDRs are more convenient” argument.

These days, most Canadian brokers offer dual-currency accounts, so you can hold CAD and USD side-by-side. And if you’re worried about conversion fees, there’s a great workaround known as Norbert’s Gambit, which lets you convert CAD to USD for a fraction of what banks charge. It takes a bit of setup, but for long-term investors, it’s well worth it.

Want to learn how Norbert’s Gambit works and when it makes sense to use it?

Get the full explanation in the CDR Guide (yes, it includes a step-by-step example and diagram).

My Personal Take: I Don’t Use CDRs-Here’s Why

Despite all their benefits, I don’t invest in CDRs myself, and here’s why:

I like the long-term upside of holding U.S. dollars. Over decades, the CAD/USD fluctuations tend to even out, but when the USD rises, I want to benefit from it.
I prefer direct ownership of U.S. stocks. More options, full shares, full dividends.
I already have a USD account. Once you’re set up, buying U.S. shares directly isn’t any more complicated, and I keep the dividends in USD for reinvestment.

That said, CDRs aren’t bad. They’re actually good for newer investors, those starting with small amounts, or anyone uncomfortable dealing in U.S. currency. But they’re not revolutionary. And they’re not for everyone.

Want to Dive Deeper?

In the CDR Guide, you’ll learn:

How fractional investing works in practice
The complete list of all 86 CDRs available as of April 2025
How currency hedging affects your long-term returns
Why most high-quality dividend stocks aren’t available as CDRs
My complete breakdown on Norbert’s Gambit for CAD/USD conversion

Subscribe now to get your copy of the Canadian Depositary Receipts (CDRs) Guide.

Building an Income Portfolio Made Easy

“What if your dividend income was more than just a yield?”

We all dream of the same thing: freedom.

Whether that’s retiring comfortably, spending more time with family, or finally ticking off that epic trip to Tuscany — the goal is simple: build income that works for you, not the other way around.

But here’s the problem: Most people start their income journey with the wrong question:

“How much yield can I get?”

While it sounds like a smart starting point, this approach is more of a napkin calculation than a real investment plan. It sets you up to chase yield, walk into value traps, and — worst of all — risk your retirement income.

So let me walk you through a better way to build an income portfolio that’s built to last.

The Shift: From Yield Chasing to Dividend Growth Conviction

Let’s kill a myth right now: High yield does not equal high income security.

Just because a stock pays 7% doesn’t mean it deserves a place in your portfolio. High-yield stocks are often the market’s way of warning you — not rewarding you.

We’ve seen this movie before: A company offers a juicy dividend, everyone piles in… then the earnings drop, the dividend gets slashed, and suddenly you’ve lost both your income and your capital. That’s not income investing — that’s gambling dressed up as a paycheck.

Instead, I focus on dividend growers. These are companies that:

Grow their revenue (top-line strength)
Grow their earnings (bottom-line power)
And grow their dividend (shareholder commitment)

This is what we call the Dividend Triangle — and it’s the first thing I look for when building an income portfolio.

But let’s go one step deeper:
For retirees, dividend growth is what protects their lifestyle.

Here’s why:

🔒 It protects you from inflation.
Prices rise every year — groceries, gas, healthcare. A company that increases its dividend annually ensures your income keeps pace.
⏳ It guards against longevity risk.
You may live 25–30 years in retirement. If your income stays flat, your purchasing power will fall dramatically.
🛡️ It reflects a strong business model.
Companies that grow their dividend can only do so by increasing their profits and cash flow — year after year. This is your best defense against surprises.

“A 3% yield growing at 8% per year will beat a 6% yield that never grows — and do it with less risk.”

Imagine this:

You retire with a $1 million portfolio. You choose stable dividend growers paying an average of 3.5%, with a dividend growth rate of 7%. In 10 years, your income will nearly double — without you lifting a finger.

Now compare that to locking in a 6% yield with no growth. Ten years later, your income hasn’t changed — but your costs have. You’re forced to sell shares to keep up, and that’s where the retirement stress kicks in.

Dividend growth isn’t just about returns — it’s about peace of mind.

If this approach resonates with you — focusing on dividend growth instead of just chasing yield — you’ll want to dig deeper into the system I use to build reliable, inflation-resistant income streams.

From Theory to Action

That’s exactly why I created the Dividend Income for Life Guide. It breaks down the step-by-step process for building your dividend pension plan — no guesswork, no spreadsheets required.

Inside the guide, you’ll learn how to:

✅ Build a portfolio that generates growing income in retirement
✅ Apply the Dividend Triangle to select stronger companies
✅ Avoid common traps like over-diversification and yield chasing

📘 Ready to go from theory to action? Download the guide and start designing the income stream you’ll rely on for decades:

Start With This Core Strategy

If you’re new to building a dividend portfolio, here’s a simple formula I’d suggest using as your foundation:

1. Define Your Target Yield

Aim for a total portfolio yield of ~3–4%
This lets you combine lower-yielding growers with stable income generators

🔥 Pro Tip: It’s not about finding one perfect stock — it’s about building a team that works together.

2. Mix Yield with Growth

Create a blend like this:

Low yield, high growth: Apple, Visa, Couche-Tard
Moderate yield, consistent growth: Johnson & Johnson, BIP
High yield, low growth (if safe!): Selected REITs or utilities

If you can access a Stock Screener, use the Chowder Rule (Yield + 5yr Dividend Growth ≥ 9%) to screen your picks.

Sector Allocation: Balance for All Seasons

No single sector is recession-proof, but some bend instead of breaking.

There are 11 sectors that we can sort into three categories:

Income/stability: Sectors where you find many mature businesses that are recession-resistant.
Growth: Sectors where you find companies with multiple growth vectors, able to surge during economic booms.
Both: Sectors where you find companies balancing growth and stability.

Income/Stability Sectors	Growth Sectors	Sectors Balancing Both
Consumer Staples	Consumer Discretionary	Financials
REITs	Information Technology	Communication Services
Healthcare	Energy	Industrials
Utilities	Materials

Do I need to invest in all 11 sectors?

Not at all. You must invest in sectors that fit with your goals, i.e., stability vs growth, and that you understand.

There’s no point in investing in tech stocks if you have no clue how the semiconductor industry cycles work. You won’t be happy when investments are down, but if you understand the industry’s characteristics, you won’t panic.

How much to put in each sector?

⚠️ Pro Tip: Keep any one sector below 20–25% to reduce risk.

Again, there are no hard rules here. I like to have a maximum of 20% invested in my favorite sectors and around 10% in others. However, I sometimes go above 20% due to the great performance of a few companies.

I invest in various industries within the same sector to avoid being impacted by a single market event.

For example, there is a big difference between:

Having 25% invested in financial services spread across five Canadian Banks, with 5% in each one.
Having 5% in each of the following: Royal Bank (Canadian bank), BlackRock (asset management), Visa (payment processor), Great-West Life (life insurance), and Brookfield Corp (alternative asset management).

Number of stocks per sector?

That depends on how many stocks you want to hold and how many sectors you want to invest in.

You can select the best 2, 3, or 4 companies in each sector you want exposure to. That would likely lead to a portfolio of 20 to 40 stocks. Purely by chance, that’s very close to what I think is the ideal number of stocks.

Number of stocks in my portfolio?

Holding fewer than 20 stocks means the room for error is thin. This strategy could be great for high-conviction investors, but I prefer securing a bit more diversification.

Conversely, if you go above 40, you’re getting closer to building your own ETF. Monitoring 70 companies quarterly will prove daunting, and you’ll eventually miss information.

Also, if a stock represents 0.32% of your portfolio, even if it doubles in value or crashes by 80%, you will never feel it.

Dividend Income = Your Personal Pension Plan

If you’re retired — or planning to be — think of your dividend portfolio as a self-built pension plan.

Each dividend-paying stock you own is like a brick in your retirement income wall. And just like any wall, some bricks are stronger than others.

Companies that grow their dividends year after year are the reinforced bricks. They strengthen your income over time and help it keep up with inflation. On the other hand, high-yield stocks that don’t grow — or worse, cut their dividends — are like hollow bricks. They may look solid, but when pressure builds (like inflation or a market downturn), they crack.

This is why dividend growth matters more than yield. It’s not just about getting paid today — it’s about getting more income every year, without selling shares.

Think of dividend growth stocks as inflation-adjusted paycheques — just like a pension, but one you control.

Again, if your portfolio yields 3.5% today, and your holdings grow their dividends by 6–8% annually, your income will double roughly every 9–12 years. That’s the income security most traditional pensions can’t even match.

Bottom line: A strong dividend portfolio is built one solid, growing company at a time. Focus on quality. Focus on growth. And watch your income become as reliable — and rising — as a pension.

The Traps to Avoid

Now that you’ve got the building blocks of a strong dividend income portfolio, it’s just as important to know what not to do. Even the best strategy can fall apart if you let fear, noise, or impatience take the wheel.

Here are three common traps I see investors fall into — and how to avoid them:

Chasing High Yield
If it looks too good to be true… it probably is. Many of the worst dividend cuts started with “safe” 6%+ yields. Always check the dividend triangle before reaching for yield.
Over-diversification
Owning 50+ stocks doesn’t make you diversified — it just makes you tired. Stick to 20–40 quality holdings across sectors you understand and can monitor.
Waiting for a Pullback
Time in the market > timing the market. Invest when the company’s fundamentals support your thesis — not when CNBC says “buy.”

Final Thoughts: Income That Grows With You

Instead of asking:

“How much income can I generate today?”

Start asking:

“How much income can I grow over the next 10, 20, or 30 years?”

That’s the mindset that builds wealth and protects your retirement.

Start with dividend growers. Build a balanced portfolio. Stay consistent. Let time do its thing.

Ready to Begin?

If you’re not sure where to start, here’s your mini checklist:

✅ Review your current holdings: strong dividend triangle?
✅ Identify your sector gaps
✅ Set a yield-growth blend target

And remember — you’re not alone. We’re building dividend income for life, one stock at a time.

Want a complete roadmap to get started? Download the Dividend Income for Life Guide — it’s packed with real-world insights, simple strategies, and the exact framework we use to help thousands of investors retire with confidence.

This guide will help you:

✅ Build a reliable income stream — even during market volatility
✅ Avoid costly mistakes (like chasing yield or holding forever)
✅ Invest with clarity, not guesswork

Start building your retirement income plan today:

And remember — you’re not alone. We’re building dividend income for life, one stock at a time.

Dogs of the TSX – Beat The TSX! 2025

What if you could beat the Canadian market by selecting ten stocks each year? The Dogs of the TSX strategy gets its name from the Dogs of the Dow, an investing technique well-known in the U.S. for selecting the “dogs” (paying a higher dividend yield) of an index.

The Dogs of the TSX, or Beat the TSX (BTSX) strategy, was developed by a professor named David Stanley. He suggested that you could beat the index by selecting the highest dividend yielders of the TSX each year.

If you are tired of losing money on bad stocks, this strategy could help you quickly build a solid core portfolio.

The Dogs of the TSX in a Nutshell

One of the BTSX’s main advantages is its easy implementation. You can start trading with four simple steps:

#1 List the TSX 60 index by dividends. The TSX 60 is the index of the 60 largest Canadian companies. Most of them are blue chips like banks or telecoms and pay dividends.

#2 Select the top 10 yielding stocks from the TSX 60. The ten most generous stocks are called the dogs of the TSX. As they offer the largest yields, they haven’t performed well the year before. Therefore, their yield is higher, and you buy them at a relatively low price.

#3 Buy the top 10 yielding stocks in equal weight. Boom! You build your core portfolio for the year! The strategy is based on buying the dogs in January.

#4 Each January, review the new Dogs of the TSX and trade accordingly. Each year, you must do steps from #1 to #3 to ensure you always have the highest Canadian yield stocks.

The Dogs of the TSX (BTSX) Stocks List 2025

Here’s the list of the top 10 yielding stocks from the TSX 60 for this year. All you have to do is invest an equal amount of money in each dividend stock to build your portfolio.

	COMPANY	SYMBOL	PRICE	DIVIDEND	YIELD
1	Bell	BCE.TO	$34.07	$3.99	11.71%
2	Telus	T.TO	$20.56	$1.61	7.83%
3	Enbridge	ENB.TO	$63.88	$3.77	5.90%
4	Algonquin Power	AQN.TO	$6.32	$0.36	5.70%
5	Bank of Nova Scotia	BNS.TO	$74.53	$4.24	5.69%
6	Emera	EMA.TO	$54.36	$2.90	5.33%
7	Pembina	PPL.TO	$52.55	$2.76	5.25%
8	Power Corp	POW.TO	$43.31	$2.25	5.20%
9	Canadian Natural Resources	CNQ.TO	$44.43	$2.25	5.06%
10	TD Bank	TD.TO	$66.14	$3.28	4.96%

30 Years of Outperformance for BTSX

Matt from Dividend Strategy is doing a monk’s work to keep track of this strategy. Shockingly, The Dogs of the TSX has outperformed the market for 30+ years!

I must add that it did not beat the market in 2023 and 2024. While the results were just 1% apart in 2023, we can see a difference of 4% in favor of the market in 2024. The narrowed sector allocation of this strategy can explain this. I have given more thought to BTSX’s recent performance in the episode below.

As shown below, the average for five years and more still exceeds the market. In 2024, pipelines in the BTSX portfolio highly compensated for other losers.

Average rate of return over time graph. Source: Dividend Strategy.

Why the BTSX Portfolio Works so Well?

I was a bit skeptical when I heard of this strategy at first. It’s unlikely that such a simple strategy would outperform the market consistently. I’ve done my research to understand the success rate behind the BTSX strategy.

#1 Buying blue-chips quality stock. The TSX 60 refers to the 60 largest stocks in Canada. Chances are, those companies will be around for a while.

#2 Canadian stocks have a great history of paying and increasing dividends. There are many dividend aristocrats among the TSX 60. Dividend growers tend to outperform the market over a long period.

#3 Buy low, sell high. The Dogs of the TSX is based on a classic investment principle: buy when stocks are low and sell them at a higher price. By rotating your portfolio each year with the new “dogs”, you ensure to buy the best stocks at the lowest price while selling those with a great return over the past 12 months.

#4 It’s relatively easy to beat the Canadian market. The fact that the BTSX is working isn’t necessarily an achievement. The Canadian market is heavily concentrated in two sectors: Financials and Energy. By investing in other sectors, you can easily beat the TSX.

Use This List Instead

Actually, you could beat the TSX using a list of well-diversified dividend growers that are leaders in their industry. I have built a list of them for you to download for free using this strategy and the tools at Dividend Stocks Rock. Enter your name and email below to get your spreadsheet with filters.

Why I Don’t Use the Dogs of the TSX Strategy

Investors can beat the TSX with an easy-to-use and straightforward strategy. Why am I not using the Dogs of the TSX for my portfolio?

#1 Know what you hold and why you hold it. It is one of the foundations of my investment model. I prefer researching and understanding a company’s business model before I add it to my portfolio. Buying stocks based on an index and a dividend yield seems too simplistic. It won’t hold very well during market crashes.

#2 Sector concentration. The BTSX forces you to buy only ten stocks based on the dividend yield regardless of the sector. The Dogs of the TSX 2022 shows 30% of financial companies and 30% of energy stocks. With 2/3 of your money invested in two industries, your portfolio is subject to intense volatility.

#3 Transaction costs and taxes. Rotating your stocks each year could trigger several transactions and prevent you from deferring tax on capital gains. This will have a severe impact on your returns in a non-registered account. Investing in the Dogs of the TSX in an RRSP or a TFSA account is best.

#4 I already beat the TSX. I’ve been a dividend growth investor since 2010. My years of experience in the financial industry and research helped me build a proven investing strategy. My results are not only better than the TSX, but they are also better than the BTSX strategy. Therefore, I don’t see any reason to change something that already works.

I have created a mock portfolio of the 2025 BTSX using the Dividend Stocks Rock PRO Dashboard just to see how it would look. Not only is it highly concentrated, but it includes many companies with poor ratings, such as Bell (BCE.TO) with a PRO Rating of two and a Dividend Safety Score of one, and Algonquin (AQN.TO) with two for both ratings.

BTSX Sector Allocation and Stocks Ratings powered by DSR.

If you’d like to have more details on my investment thesis for the companies part of the Dogs of the TSX, I have reviewed them in this episode.

Exclusive List of Dividend Growers with More Potential

There is another way to beat the TSX with more conviction. It is to invest in companies that show revenue growth, earnings per share (EPS) growth, and dividend growth. Selecting well-diversified holdings with growth metrics ensures your portfolio will beat the market for decades!

To help you build a solid portfolio, I have created the Canadian Rock Stars List, showing over 300 companies with growing trends.

Enter your name and email below to get the instant download in your mailbox.

Canoe Income Fund (EIT.UN.TO) Review – 2024

Canoe EIT Income Fund is a Canadian closed-end investment trust. The investment objective of the Fund is to maximize monthly distributions relative to risk and maximize net asset value while maintaining and expanding a diversified portfolio. In other words, EIT has been created to take your money, manage it, and distribute juicy monthly dividends to help you manage your retirement budget.

Learn how to create a recession-proof portfolio. Download our free workbook now!

What Canoe Income Fund looks like

The Canadian fund includes 47.3% (7% less than last year) of Canadian equity stocks, 50.4% (+7%) of U.S. stocks, 5.58% (you read that right, the website shows 103% of the money invested…that’s probably linked to leverage.) of international equity, and 0% (in line with last year) cash. Despite having less than 50% of its assets invested in Canadian firms, its sector breakdown is heavily concentrated in financials, energy, and materials (55.98%).

Source: EIT website

Top-25 Holdings

They have an impressive diversification of stocks from low yield to high yield with various safe stocks and other quite speculative securities. The fund has greatly diminished its exposure to the energy sector, as they have made the smart move of cashing in on many of their gains in that sector.

Another interesting point is the amount of turnover in the fund when we compare their top holdings from August 2023. I have highlighted (in green) 9 positions out of 25 (36%) that are not in the top 25 this year. Last year, it was 12 positions for a 48% turnover rate.

But my opinion does not really matter if the fund helps you retire happily. Let’s look at what does really matter though and that is how the fund’s money has been managed over time and how much you profit (or not) from the management team led by Rob Taylor, CPA, CA, CFA (yes, he needs 2 business cards to include all his titles!).

Secure your retirement. Download our Recession-Proof Portfolio Workbook.

Performance & Distributions

From their website, we can see that EIT has outperformed the TSX on a consistent basis (which was not the case prior to 2020). Their focus on the energy and basic materials sectors clearly paid off after the pandemic and now the fund has moved to other sectors.

However, I don’t particularly appreciate that they only use the TSX as their benchmark and ignore the S&P 500. With 50% of their portfolio invested in the U.S., it seems only fair to include U.S. and international components to their benchmark measures.

Just for fun, I ran the calculations using a portfolio with 47% XIU.TO, 50% SPY and 3% XEF.TO (for international equity) for the past 10 years, 5 and 3 years. Results include dividends and are as of 7/31/2024 to match their website.

CAGR: 10yr: 10.44%, 5yr: 12.72%, 3yr: 8.6%.

This is quite interesting, as our conclusions in 2021 and 2020 were not the same. The first two times we analyzed the fund, it had underperformed the index portfolios we created. This time, it is quite the opposite. You can see that change occurred around mid-2021 where Canoe started to surge while indexes reached a plateau and eventually decreased in 2022.

The idea of having a high-yield investment (EIT.UN.TO pays 8.5% yield at the time of writing) where distributions are paid monthly is quite interesting. If you reinvest the distribution, you could beat the market, which is quite impressive! Strangely enough, EIT.UN.TO returns are now quite similar to my personal portfolio.

The lesson here is that conclusions and returns can vary from one year to another. We will review Canoe again next year. The Canoe fund could be an interesting way to generate a high income from your investments. However, if you cash this distribution, make sure you realize two things:

#1 Your capital will not likely grow over time

#2 Your dividend will not likely grow over time

Therefore, it’s an interesting investment vehicle for income, but that income is not inflation-proof. In fact, you receive a lot less today than 10 years ago. If you reinvest the dividend in the fund, then, you get a good total return. However, you don’t get to cash the dividend to fund your retirement.

Do you see how we run into circles?

Canoe and the habit of issuing more shares

Another interesting point is that Canoe has continuously issued more units year after year since 2018. This is great for raising money to invest and capture opportunities. However, it’s not that great when you consider that it increases the amount to be paid in dividends each year.

With this kind of structure, it looks like Canoe will do well as long as we are in a bull market. If units start to tumble, Canoe will have difficulty issuing more shares to invest and pay the current dividend. This could put serious pressure on Canoe’s ability to maintain its generous distribution.

Final Thoughts

Canoe EIT income fund is not the worst investment in the world. In fact, it generated decent returns considering its dividend. While recent performance has been impressive, the fund is not perfect. First, ownership of this fund does not avoid value fluctuations when the market is shaky. If you looked at your portfolio value during corrections Canoe did not save you from headaches.

The only thing that is “guaranteed” is the dividend payment… until it isn’t. Does any Canadian remember Financial Split Corp (FTN.TO) or Dividend 15 Split Corp (DF.TO)? They were both famous for their high yields and super solid investment strategy. I will leave it to you to research them today if you are curious. Did I ever tell you there is no free lunch in the world of finance and investments?

Canoe looks good today, but it was not the same story three years ago. Can it show more consistency going forward? Only time will tell.

Should you Use Profit Protection Measures?

Profit protection measures are ways in which investors sell their shares to safeguard existing profits, or to limit potential losses. How do investors do that? While protecting profits and limiting losses sounds like a wise thing to do, is it?

Profit protection is also known as profit preservation or risk management. Two ways of implementing profit protection are to set a profit cap at which you sell holdings and to use stop-sell orders.

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Profit cap rule

Some investors adopt rules for selling shares. For example, if they’re up 50% on a stock, they sell it. They are putting a cap on their profits, perhaps sometimes thinking that they got lucky and just want to run with a bag of money.

If you’re an active trader and you keep on buying and selling all the time, maybe this type of rule can be part of your strategy.

I prefer to let my winners run so I don’t set rules like this to protect my profit. Over the past 20 years, I found that it’s worth holding on to your great picks—those companies that you were so right about buying. Letting them run 5, 10, 15 years, can create so much profit…300%, 400% sometimes even over 1000%!

Since my focus is on dividend growth, I have 90-95% of my portfolio invested in dividend-growing companies, which I plan on holding for a long time.

Stop-sell orders

Another mechanism investors use for profit protection is to set up stop-sell orders. Imagine you bought shares at $50, and they are now trading at $100. Perhaps you’re thinking “Wow! I’m making a 100% return on this one. That’s crazy. But I don’t want to sell it because, well, what if it keeps going up? On the other hand, if it starts falling, I don’t want to lose all that profit.”

You could put in a stop-sell order that is triggered at $75.00; if the stock goes down to this price, your order becomes active or open, shares are sold, and you cashed in on some of the profit.

My use of profit protection

I don’t adopt profit protection measures very often. As I said earlier, 90-95% of my portfolio are dividend growers that I want to hold for a long time without capping my profit. I believe that if my portfolio’s sector allocation is in good shape, that my holdings are well diversified across industries, that I picked the best of class, and I monitor their results and trends every quarter, I am protected.

However, for the remaining 5-10% of my portfolio, I like the occasional speculative plays, especially when there’s a lot of volatility in the market like in 2020 for example, where I could see opportunities. I never exceed 10% of my portfolio in speculative plays and limit them to three or four positions. With these speculative plays, I do sometimes use stop-sell orders to protect my profit.

Something else that I do that relates to profit protection is to trim winning positions that are weighing too much in my portfolio.

My limit for any single position in my portfolio is 10%; that’s an arbitrary limit. Yes, I like to let my winners run, but I don’t want to wake up one day having 25% of all my investments in a single stock, even if it is a winner. After all, you can never be 100% about any stock, and certainly not about any company being able to thrive forever; competition changes, the economy changes, and consumer behavior changes.

For these reasons, I decided that I didn’t want to lose more than that 10% exposure on a specific stock and that whenever that 10% was exceeded, I would sell part of it automatically to bring the position back below or at my limit.

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Is profit protection worth doing?

I think the value of profit protection has a lot to do with your strategy. If you’re an active trader or an investor who makes a lot of speculative plays, then yes, profit protection can play a role in your strategy.

While I do occasionally use stop-sell orders for my limited speculative plays, I don’t systematically implement profit protection measures. I prefer to protect my portfolio by trimming overweight positions rather than cashing in all my profit.

In the end, though, it still comes down to selling at a profit to protect against the impact of a potential loss by limiting a portion of the profit you make on a winning stock.