Looking for income from funds

Question: Are there any mutual funds that have a higher monthly or quarterly distribution than the 3c to 6c per unit that I frequently encounter? Is there a site where I could get information on which funds pay the highest distribution? I am looking for a steady source of income. – J.M.

Gordon’s answer: For starters, you’re asking the wrong question. It’s not the cash amount of the distribution that is important if you’re seeking income. It’s the projected cash yield on the amount of your investment.

For example, the TD Monthly Income Fund currently pays a monthly distribution of 3.25c a unit, or 39c a year. Based on a recent unit price of $13.65, that projects to a one-year cash yield of 2.86 per cent.

The RBC Monthly Income Fund pays 4.35c a month (51c a year) and was recently priced at $12.10 for a projected one-year yield of 4.21 per cent.

The CIBC Monthly Income Fund and the BMO Monthly Income Fund both pay 6c a month (72c a year) at present. But because of the difference in net asset value per unit, the one-year cash yield for the CIBC fund projects to 5.64 per cent while the one-year yield on the BMO fund would be 7.53 per nt, assuming payments continued at the current rate (which is not guaranteed).

If you want a higher cash yield, with more risk, you should look at income trust mutual funds or exchange-traded funds. For example, the Citadel Diversified Income Trust Fund, which trades on the Toronto Stock Exchange under the symbol CTD.UN, currently pays monthly distributions at the rate of 8c a unit (96c a year). Based on a recent trading price of $10.73, that projects to a one-year cash yield of 8.95 per cent.

The only source that I am aware of that analyzes the cash yields of mutual funds is the March issue of my Mutual Funds Update newsletter. We have been providing this service to our readers for many years. For information go to http://www.buildingwealth.ca/promotion/50plusproducts.htm

For on-going information and recommendations about income securities of all types, take a look at our Income Investor newsletter. You’ll find details at the same web page.

Do you have a money question you’d like to ask Gordon? Send it along and then check out our Q&A section regularly to see if it was chosen for a response. Details at http://www.50plus.com/money/askgordonpape.cfm Sorry, we cannot send personal answers.