Mexico Fund's Dividend Boost: A Disciplined Play for Income and Growth

In a world of market volatility and uncertain yields, investors seeking stable income with growth potential are turning to The Mexico Fund, Inc. (MXF). The fund's recent 13.6% dividend increase, announced in late June 2025, underscores its disciplined payout strategy and robust performance. With a 5-year average total return of 18.53% as of May 31, 2025, MXF has positioned itself as a compelling hybrid investment—blending rising dividends with capital appreciation. Here's why it merits serious consideration.

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### Performance Consistency: A Foundation for Confidence
MXF's 18.53% 5-year average annual total return—highlighted in its June 2025 press release—represents a dramatic improvement over prior periods, such as the 10.98% reported in late 2023. This outperformance, particularly against the MSCI Mexico Index, reflects the fund's focus on Mexican equities, including top holdings like Fomento Económico Mexicano and Grupo Financiero Banorte.



The fund's consistency is critical. While its current fiscal year-to-date return (November 2024–May 2025) was modest at 2.08%, its long-term track record suggests resilience. Over the past decade, MXF has navigated economic cycles, political shifts, and commodity price swings, maintaining its Managed Distribution Plan (MDP) since 2008. This reliability is key for income-focused investors.

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### The Managed Distribution Plan: A Pillar of Stability
The MDP ensures MXF's $0.25 quarterly distribution (annualized 6.0% as of May 2025) remains consistent, even in volatile markets. Since its inception, the fund has distributed $27.48 per share, a testament to its commitment to cash flow. The MDP's structure allows flexibility: distributions can include net investment income, capital gains, or return of capital (35.33% of the April 2025 payout).



Critics may question the return-of-capital component, which reduces NAV over time. However, MXF's 19.5% discount to NAV (as of July 2024) suggests shares are undervalued, creating a buffer. The fund's strategy balances near-term income with long-term growth, leveraging Mexico's economic tailwinds—from energy reforms to tech-sector expansion.

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### The Distribution Blend: Income Meets Growth
MXF's latest distribution breakdown offers a balanced approach:
- 46.34% from net investment income, reflecting dividends and interest.
- 18.33% from capital gains (short- and long-term), signaling portfolio turnover.
- 35.33% return of capital, maintaining payouts during periods of lower income.

This mix is deliberate. While return of capital reduces NAV in the short term, it allows MXF to avoid cutting dividends during market dips—a common pitfall for peers. Over five years, the fund's NAV total return has averaged 18.53%, far outpacing its expense ratio of 1.35% (as of 2023).



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### Why Invest Now?
1. Sustainable Dividend Growth: The 13.6% increase reflects confidence in Mexico's economic trajectory. With the Mexican equity market poised to benefit from rising global commodity prices and domestic reforms, MXF's holdings could see sustained gains.
2. Closed-End Fund Discount: The 19.5% discount to NAV offers a margin of safety, especially if Mexico's economy rebounds.
3. Managed Risk: The MDP's 17-year history and the fund's focus on top-tier Mexican firms mitigate unsystematic risks.

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### Risks and Considerations
- Return of Capital Concerns: Over-reliance on capital returns could strain NAV if performance lags. Investors must monitor the distribution composition.
- Market Volatility: Mexican equities are tied to global energy prices and domestic policy shifts.
- Expense Ratio: While justified by active management, the 1.35% fee may deter passive investors.

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### Conclusion: A Hybrid Play for Patient Investors
MXF is no get-rich-quick scheme. Its 18.53% 5-year return and 13.6% dividend boost reward investors who prioritize stability and long-term growth. The fund's blend of income, capital gains, and disciplined payout strategy makes it a standout in a volatile landscape. For those seeking a low-cost, high-yield exposure to Mexico's equity market, MXF offers a compelling entry point—especially at its current discount.



Investment Recommendation: Consider MXF for a diversified portfolio seeking both income and growth. Monitor its NAV recovery and distribution composition, but remain patient. In a world of uncertainty, Mexico's rising stars—and MXF's disciplined strategy—could deliver steady rewards.

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Disclosure: The analysis is based on publicly available data as of June 2025. Past performance does not guarantee future results.