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For many investors, steady cash flow is the top priority. But they don't have the time or the skills to build a credible income portfolio themselves. If you're in that group, there is an ETF you should look at: the iShares S&P/TSX Equity Income Index ETF (XEI). Here are the details.

Current price (July 17): $23.40

Annual payout: $0.96 (approximate)

Yield: 4.1 per cent

Entry level: Market price

Risk Rating: Moderate risk

Website: www.ishares.ca

The security:
Created in April 2011, this ETF has almost $233-million in assets under management. The top-weighted companies are household names including several major banks, BCE Inc., Rogers Communications, Shaw Communications, Potash Corporation, Sun Life Financial and Canadian Oil Sands, plus there are a lot of small– and mid-cap companies in the portfolio.

Energy stocks make up almost 30 per cent of the portfolio, closely followed by financials at 28.4 per cent. Other large sectors are telecoms (12.1 per cent), utilities (10.6 per cent), materials (6.3 per cent) and consumer discretionary (5.3 per cent). Overall, the portfolio has a price/earnings ratio of 17.

Why we like it:
The focus on dividend-paying stocks makes this an ideal ETF for income investors who want to diversify their portfolios. Performance thus far has been very good although it is important to remember that this ETF hasn't experienced a market downturn. Over the year to June 30, it gained 25.4 per cent. The three-year average annual compound rate of return to that point was 10.1 per cent.

Financial highlights:
In March, BlackRock Asset Management, which owns the iShares brand, announced the annual management fee has been slashed from 0.55 per cent to 0.2 per cent as part of the escalating ETF price war, making this fund a real bargain for investors. The reduction of 0.35 percentage points will improve investor returns going forward.

Risks:
This is an all-equity portfolio so a market correction would have a negative effect on the share price.

Distribution policy:
The fund pays monthly distributions, which have recently been running at $0.08 per unit. At that rate, which is not guaranteed, the yield is 4.1 per cent based on the July 16 closing price of $23.26. There is a dividend reinvestment plan for investors who don't need the cash immediately.

Tax implications:
There are tax advantages to this fund if the units are held in a non-registered account. In 2013, investors received distributions totalling about $1.40 per share. Of that, 63.6 per cent was eligible for the dividend tax credit, 32.2 per cent was taxed as capital gains, and the rest was treated as tax-deferred return of capital. These percentages will vary from year to year.

Who it's for:
This ETF is best suited to investors who want a broadly diversified Canadian stock portfolio that combines good cash flow with capital gains potential.

How to buy:
The units trade on the TSX and any broker can acquire them for you. The cheapest way to buy them is through a discount broker.

This ETF is often overlooked. It should be a core holding for income investors who prefer exchange-traded funds to mutual funds. Ask a financial adviser if it is suitable for your account.

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