Buy-and-Hold Strategy in High-Yield Closed-End Funds: Evaluating Eaton Vance Enhanced Equity Income Fund (EOI) as a Core Holding

For income-focused investors, the allure of high-yield closed-end funds (CEFs) lies in their ability to generate consistent cash flow while offering the potential for capital appreciation. Among these, the Eaton Vance Enhanced Equity Income Fund (EOI) has emerged as a compelling candidate for a long-term, buy-and-hold strategy. This article evaluates EOI's historical performance, dividend consistency, and cost structure to determine its viability as a core portfolio holding in a diversified income portfolio.

Dividend Consistency and Growth: A Foundation for Income Stability

EOI's dividend history from 2020 to 2025 underscores its reliability as a source of regular income. As of August 2025, the fund offers a forward dividend yield of 7.58%, significantly outpacing the average yield of equity CEFs. This high yield is supported by a 9.78% compound annual growth rate (CAGR) in dividend per share over the past three years. For context, EOI's annual dividend increased from $1.0776 in 2020 to $1.61 in 2025, reflecting a disciplined approach to raising payouts even during periods of market volatility.

The fund's monthly dividend schedule further enhances its appeal for income seekers. Investors receive predictable cash flows, which can be reinvested to compound returns over time. Notably, EOI's management has demonstrated a willingness to adjust payouts in response to market conditions, as seen in the 22.19% jump in April 2024 when the dividend rose from $0.1095 to $0.1338 per share. This adaptability suggests a proactive strategy to balance income generation with portfolio sustainability.

Performance Against Benchmarks: A Track Record of Resilience

EOI's investment strategy—focusing on large-cap and mid-cap U.S. equities while employing covered call options to enhance income—has historically delivered competitive returns. As of August 2025, the fund has outperformed the S&P 500 in multiple time frames:
- YTD (Year-to-Date): 7.59% vs. S&P 500's 9.66%
- 1-Year Return: 20.71% vs. S&P 500's 16.35%
- 3-Year Return: 56.23% vs. S&P 500's 50.10%
- 5-Year Return: 99.28% vs. S&P 500's 91.23%

While the S&P 500's broader exposure to growth stocks has driven higher returns in some periods, EOI's focus on income-generating equities and options strategies has provided a buffer during market downturns. This resilience is critical for a buy-and-hold strategy, as it reduces the need for frequent portfolio adjustments.

Expense Ratio and Cost Efficiency: A Trade-Off Worth Considering

EOI's expense ratio of 1.10% (as of September 30, 2024) is in line with the average for equity CEFs but higher than passive index funds. The fee structure includes a 1.00% management fee and 0.10% in other expenses, with no interest or baseline expenses reported. While this cost may deter some investors, the fund's high yield and active management justify the premium for those prioritizing income over cost minimization.

A key consideration is EOI's use of leverage, which can amplify both returns and expenses. The advisory fee is calculated on the fund's gross assets, including any leverage, meaning costs could rise if the fund increases its use of borrowed capital. However, given EOI's consistent performance and dividend growth, the expense ratio appears reasonable for a long-term holding.

Risks and Mitigations: A Balanced Perspective

Like all CEFs, EOI is subject to market risk and the potential for trading at a discount to its net asset value (NAV). As of August 2025, the fund's share price of $21.18 reflects a slight discount to its NAV, which could narrow or widen depending on market sentiment. Additionally, the fund's reliance on covered call options introduces complexity, as changes in volatility or interest rates could impact income generation.

However, these risks are mitigated by EOI's diversified portfolio and the expertise of Eaton Vance Management, a firm with over a century of experience in active management. The fund's focus on large-cap equities also provides a degree of stability, reducing exposure to the volatility of smaller companies.

Investment Thesis: A Core Holding for Income Portfolios

For investors seeking a buy-and-hold strategy, EOI offers a compelling combination of high yield, consistent dividend growth, and competitive returns. Its 7.58% forward yield is among the highest in its category, and its 9.78% CAGR in dividend per share demonstrates a commitment to increasing shareholder value. While the expense ratio is a drawback, the fund's performance and income potential offset this cost over the long term.

Recommendation: Investors with a 5–10 year time horizon and a focus on income should consider allocating a portion of their portfolio to EOI. The fund is particularly suitable for those seeking monthly cash flows and a buffer against market downturns. However, due diligence is advised to monitor the fund's leverage usage and NAV discount, which could impact long-term returns.

In conclusion, Eaton Vance Enhanced Equity Income Fund (EOI) exemplifies the potential of high-yield CEFs as core holdings in a buy-and-hold strategy. Its blend of income generation, performance resilience, and active management makes it a standout option for investors prioritizing long-term value and regular returns.