A 7% Yield? Here’s the Question TFSA Investors Must Ask

A 7% yield can look like free money in a Tax Free Savings Account (TFSA). That’s why you need skepticism. A big payout can build tax-free income fast. It can also hide problems until the unit price does the talking. So when you spot a sky-high yield, ask one question: What funds the distribution?

If the cash comes from durable income and a portfolio that grows, the yield can compound your TFSA. If it depends on selling assets, leverage, or returning your own capital, the monthly deposit can feel great while your account value stalls. You want income that adds to wealth, not income that just reshuffles it. I like to see the net asset value rising after distributions. So let’s look at one dividend stock to consider.

EIT

Canoe EIT Income Fund (TSX:EIT.UN) forces you to think this way. It is a closed-end fund that holds a diversified mix of public securities and targets distributions alongside net asset value growth. It pays $0.10 per unit each month, or $1.20 a year. In February 2026, the fund confirmed that payout again and updated a special non-cash distribution tied to year-end tax mechanics, yielding at about 7% at writing.

The last year also showed this is not a plain dividend stock. In late January 2026, Canoe announced a $300 million private placement of Series 3 preferred units at $25, with a fixed $1.25 annual preferred distribution, and it planned to use the proceeds within the fund’s strategy. Preferred capital can add flexibility, but it also adds obligations ahead of common unit holders. The fund also warns that distributions may include return of capital, which can reduce net asset value over time.

What has investors excited is the track record. In its 2024 management report, EIT delivered a 28% total return on a market price basis and 28.4% on a net asset value basis, ahead of the TSX. Over 10 years, the same report shows a 13.6% compound return based on market price. That may not guarantee anything, but it shows the fund can generate gains, not just cheques.

Earnings support

Now look at the most recent financial results, which fund that dividend. Now, the dividend stock doesn’t report the same as many other stocks, instead looking at semi-annual results. So, for the six months ended June 30, 2025, EIT.UN reported $33.2 million in dividend income and net gains on investments and derivatives of $194.4 million. It also reported a $172.5 million increase in net assets attributable to common unit holders. Net asset value per unit rose to $15.86 at June 30, 2025, from $15.52 at Dec. 31, 2024.

Here is the nuance TFSA investors must not ignore. In that same six-month period, the fund recorded $109.1 million of distributions to common unit holders, with $23.6 million coming from dividends and $85.4 million coming from realized gains on sales of portfolio assets. That can work when markets cooperate. It can tighten when markets cool, because realized gains tend to shrink and discounts to NAV can widen.

Valuation comes down to what you pay versus what you get. As of writing, the dividend stock offers a 7% dividend yield while trading at 7.4 times earnings. However, the statements also describe a margin facility. A discount to net asset value (NAV) can help, but it can also reflect nerves about volatility and the income mix behind the payout. For now, though, here is what even $7,000 can bring in with the current annual dividend of

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENTEIT.UN$16.97412$1.20$494.40Monthly$6,991.64

Bottom line

So, is EIT.UN a good TFSA dividend stock pick? It can be, if you buy it for total return first and the yield second. The fund has shown it can grow NAV while paying monthly cash, and it gives you diversification in one ticker. Still, treat the payout as a result, not a promise. If you hate price swings, this will test you. Keep asking the same question: Is this yield building my TFSA, or just recycling it?

The post A 7% Yield? Here’s the Question TFSA Investors Must Ask appeared first on The Motley Fool Canada.

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More reading

• The Ideal TFSA Stock: A 7.5% Yield Paying Constant Cash
• Use Your TFSA: Earn $420 Each Month in Tax-Free Income

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.