Canadian Monthly Income Fund Comparison

Lately we have received a few emails from readers asking about monthly income funds from the Canadian big banks.  A monthly income fund is a type of actively managed mutual fund that emphasizes current income, either on a monthly or quarterly basis, as opposed to capital appreciation.

These funds hold a variety of government, municipal and corporate bonds, preferred stock, and dividend stocks.  Monthly income funds are designed for people seeking a reasonably consistent level of monthly distributions.

I researched the monthly income funds offered at each of the Canadian big banks and have put together this chart for comparison (updated December 6th, 2012).

Canadian Monthly Income Fund Comparison

  BMO CIBC RBC TD BNS
Annual dividend per share 72 cents 72 cents 51 cents 37 cents 36 cents
Yield 9.98% 5.7% 3.9% 2.12% 3.63%
Expense ratio (MER) 1.57% 1.48% 1.2% 1.48% 1.43%
% of stocks, bonds, cash 52,45,3 53,42,5 43,48,9 59,36,5 49,40,11
Min. initial investment $500 $500 $500 $100 $500
Min. subsequent investment $50 $25 $25 $100 $50
5-year return 2.58% 0.97% 3.76% 3.42% 2.68%
Net assets per share $7.21 $12.66 $13.20 $17.22 $9.90

Which Monthly Income Fund Should You Choose?

Since the stock market crashed in 2008, monthly income distributions have been anything but steady, and with annual returns under 4 per cent you’re treading water at best after inflation.

Each of the big bank income funds, other than BMO, reduced their distributions at least once since 2007.  TD slashed its annual distributions from 48 cents to less than 37 cents a share – a nearly 24 per cent reduction – while RBC cut its distributions from 57 cents to 51 cents per share – a 10.5 per cent decrease.

BMO’s monthly income fund has kept its distributions steady at 72 cents throughout the market turmoil and currently yields nearly 10 per cent, however investors should be wary because such a high yield isn’t sustainable for the long term.

The distributions could be cut, but even if they remain intact it’s likely that investors will just be getting their own capital back.  Return of capital means the net asset value of the fund will erode over time and investors will need to track their adjusted cost base or face tax implications when they sell.

If you’re looking for total returns (not just monthly income) you might be better off choosing the RBC or TD monthly income funds.

I don’t like paying investment fees and prefer a do-it-yourself approach when it comes to investing.  It wouldn’t be that much of a stretch to try and replicate this portfolio on your own.

By choosing some large-cap Canadian stocks in the financial, energy, and consumer staple sectors and then creating a bond ladder, you could produce your own income fund without the high MER.

What are your thoughts on buying a Canadian monthly income fund?  Do you own one and, if not, which one would you buy today?


20 Responses to Canadian Monthly Income Fund Comparison

  1. Nice post.

    If I REALLY HAD to pick one, I’d probably go with RBC. Decent and sustainable yield, decent return, good equity to bond ratio and most of all, low fees.

    Like diamonds, “fees are forever” :(

    • I agree with you about the fees Mark, however I can see why these funds are attractive to retired folks as well. Nice and steady (hopefully) monthly income.

  2. As you know I sweated bullets over this one. I finally elected CIBC for half and the other half I’m DIY. We’ll see how that works out. Thanks for the analysis.

  3. As a young person I prefer a more growth-oriented portfolio. Lately I have been looking into how to pick mutual funds, and truly looking at if it is possible to identify better managers in advance. The jury is still out for me.

    • @My University Money
      Interesting, I know that Ed Rempel has posted a lot about identifying fund managers over on the Million Dollar Journey blog. However I think most PF bloggers either index their portfolio or prefer a do it yourself plan (usually with dividend stocks.

      • You probably can’t identify good mutual fund managers in advance. You really only have their track record to go by. Some of the latest stars can become dogs in a year or two and be replaced rather quickly.

  4. HI everybody

    I know what Dividend Yield means. Could somebody please explain me he difference between
    Annual Dividend / Share and Yield
    (first an second line in the chart)
    Thank you

    • Hi David. That’s a good question.
      Dividend yield per share is simply the amount you get for each share you own. So, if you have 100 shares of BMO you would receive $72 per year, or $6 per month.
      Yield is how this amount is represented as a percentage which is usefull when comparing investments. The calculation is yield per share/price X 100 = yield. Using BMO again as an example: .72/8.24 X 100 = 8.7%

  5. Actually they are dividends they’re distributions. Because some may be interest, capital gains or even return of capital. The BMO one you have to be careful becuase some of it is return of capital, that’s why when you look at the rate of return on the BMO website it’s different.

  6. We’ve been retired for 18 months now, and have our entire pension funds equally divided into a REIT fund,(which pays us dividends monthly), an income fund, and a mutual fund.
    It’s was ok for the first 15 months, but, these last 3 months (jan, feb. march of 2012) have been really scary as the REIT fund (which WAS doing SO well) has really not been performing well, due to the stock market taking such a s**t kicking, and doesn’t look like it’s going to be bouncing back any time soon!
    My question to you is, should we be looking at perhaps getting out of this REIT fund and investing somewhere else that is not so affected by the market volitility, but will still grow (for us)so that we can continue to enjoy being retired?

  7. Anyone know what the x dividend date is for the BMO Monthly income fund?
    I want to get out of it and don’t want to miss the monthly distribution. I’m finding this type of information very hard to find.
    TIA

  8. Does anyone have info about portfolio construction for systematic withdrawals in retirement? I’m looking at the Mawer family of funds among others. Opinions?

  9. I wonder which monthly income etf would provide good income plus low management fees.
    Global, emerging markets, U.S. any suggestions?

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