AI Dividend Delight or Risky Return? Decoding Virtus AIO's Monthly $0.15 Payout

Oliver BlakeSaturday, Jun 7, 2025 11:29 am ET
22min read

The Virtus Artificial Intelligence & Technology Opportunities Fund (NYSE: AIO) has carved a niche in the income-investment space with its bold promise: a monthly $0.15 dividend since January 2024, clocking in at an 8% yield based on its net asset value (NAV). But beneath the surface of this tech-themed closed-end fund lies a complex interplay of leverage, return of capital (ROC), and a ticking clock on its 2031 termination date. Is AIO a steal for income seekers, or a risky bet on AI's uncertain future? Let's dissect the facts.

The Allure of AIO's Dividend

The fund's Managed Distribution Plan (MDP) delivers a steady $0.15 per share every month, a rare feat in an era of dividend cuts. This consistency has drawn income investors to AIO, especially amid its 7.48% premium to NAV as of June 2025. The fund's focus on AI-driven companies—like NVIDIA (NVDA), Meta (META), and Netflix (NFLX)—adds allure, as these firms are at the forefront of tech disruption.

But the devil is in the details. To sustain these payouts, AIO relies on a mix of net investment income, capital gains, and, occasionally, ROC.

The Mechanics of Managed Distributions

The MDP's sustainability hinges on two factors: the fund's ability to generate income and capital gains, and its use of 14.4% leverage (via debt) to amplify returns. Let's break down recent distributions:

  • February 2025: The last disclosed composition showed 0% ROC, with 64% of the payout coming from long-term capital gains, 28% from short-term gains, and 8% from net investment income.
  • Historical Volatility: In 2024, some months saw ROC creeping in—like 24.5% in May . This inconsistency underscores the risk: if tech stocks underperform, AIO may dip into ROC to preserve the $0.15 dividend.

Yield Sustainability Under the Microscope

AIO's annualized total expense ratio of 2.54% (including 0.99% interest on leverage) eats into returns. Meanwhile, its average portfolio coupon of 4.07% leaves little room for income growth. Here's the math:

  • Current Earnings: The fund's average earnings per share (EPS) over 12 months ended February 2025 were $0.0154—a fraction of the $0.15 monthly payout.
  • Reliance on Gains: The bulk of distributions depend on capital gains, which are volatile. A tech selloff or rising rates could crimp gains, forcing ROC.

The fund's 94% portfolio turnover—a near-complete annual rebalance—also signals active trading, which may boost short-term gains but increases transaction costs and tax liabilities.

The ROC Reality Check

ROC isn't inherently bad, but it's a red flag if it becomes a regular feature. AIO's history shows variability:

  • 2024 ROC Spikes: Months like May (24.5%) and July (16.3%) saw significant ROC contributions.
  • 2025 Stability?: February's 0% ROC suggests recent tech gains helped, but this could reverse.

Investors must remember: ROC reduces your tax basis, meaning fewer gains are taxable later. But it also signals the fund is dipping into principal to pay dividends—a warning sign if it becomes routine.

Performance Metrics and Market Dynamics

AIO's NAV has delivered a 14.13% 5-year annualized return, outperforming the S&P 500. However, its 7% discount to NAV as of June 2025 hints at market skepticism about its long-term prospects.

  • Leverage Risks: The 14.4% debt amplifies gains in upswings (e.g., a 54.57% price jump in 2024) but magnifies losses in downturns (e.g., a 28% drop in 2022).
  • Tech Volatility: AI stocks are speculative; a regulatory crackdown or tech slowdown could hit the fund hard.

The Clock is Ticking: Limited-Term Implications

AIO is a closed-end fund with a 2031 termination date, unless extended. This creates two key risks:

  1. Liquidation Uncertainty: By 2031, the fund must sell assets, potentially at fire-sale prices if the tech sector is in a downturn.
  2. Premium Pressure: The current 7.48% premium may evaporate as the termination date nears, leaving investors exposed to NAV declines.

Investment Considerations

Who should buy AIO?
- Aggressive Income Seekers: The $0.15 monthly dividend provides a high yield, but only for investors who can stomach volatility and the ROC risk.
- Tech Bulls: Those betting on AI's long-term dominance may find comfort in AIO's exposure to NVIDIA, Meta, and other innovators.

Red Flags to Watch
- If ROC exceeds 10% of distributions consistently, it signals trouble.
- A widening discount to NAV or rising leverage costs (due to higher interest rates) could weaken returns.

The Bottom Line
Virtus AIO is a high-octane play for income investors willing to ride the tech rollercoaster. Its $0.15 dividend is sustainable only if capital gains keep flowing—a big “if” in a sector as volatile as AI. Pair it with a short-term holding period (before 2031) and a diversified portfolio to mitigate risk.

For now, AIO's blend of yield and tech exposure makes it a compelling—but risky—addition to aggressive income strategies. Proceed with caution, and keep a close eye on ROC disclosures.