Is Calamos Strategic Total Return Fund (CSQ) a Compelling Buy for Income Investors in 2025?

For income-focused investors, the Calamos Strategic Total Return Fund (CSQ) presents a nuanced case in 2025. Balancing its 6.65% annualized yield, strategic use of leverage, and a notable market discount, the fund’s appeal hinges on whether these elements align with risk tolerance and return expectations. Let’s dissect the key factors.

Yield Sustainability: A Mixed Picture

CSQ’s monthly distribution of $0.1025 per share (6.65% annualized) appears attractive, particularly for investors seeking regular income [3]. However, the fund’s recent payout is categorized as return of capital, which raises questions about the long-term sustainability of its yield [4]. Historically, the fund has maintained a relatively consistent dividend, with a 1.96% average growth rate over five years but a -0.162% decline in the past three years [2]. This volatility underscores the importance of evaluating the fund’s ability to cover distributions from earnings rather than principal.

The fund’s diversified portfolio—spanning equities, convertible securities, and high-yield corporate bonds—provides a foundation for income generation [1]. Yet, the reliance on leverage and the current return-of-capital classification suggest that investors should monitor future earnings reports to assess whether the yield remains supported by cash flow.

Leverage Strategy: Balancing Risk and Reward

CSQ employs leverage to amplify returns, with 29.75% of its portfolio effectively leveraged as of August 2025 [2]. This includes $1.0 billion in debt and $4.44 billion in total investment exposure, translating to a debt-to-equity ratio of 0.38 and a debt coverage ratio of 439% [2]. These metrics indicate a conservative leverage profile, as the fund’s assets significantly exceed its liabilities.

The fund’s leverage strategy aims to generate a positive spread between borrowing costs and investment returns, a critical factor in risk-adjusted performance [1]. However, the use of derivatives—such as futures, options, and swap agreements—introduces additional volatility [3]. While these tools can enhance returns in favorable markets, they may exacerbate losses during downturns. Investors must weigh the potential for higher yields against the increased complexity and risk inherent in such strategies.

Market Discount: A Double-Edged Sword

As of August 30, 2025, CSQ trades at a 4.88% discount to its net asset value (NAV), significantly wider than its average discount of -2.52% over the past year [2]. This discount reflects a combination of market dynamics and investor sentiment, which can fluctuate based on macroeconomic conditions and fund performance.

For income investors, a wider discount may present an opportunity. Closed-end funds like CSQ often trade at discounts due to factors such as liquidity constraints or perceived risk, but these discounts can narrow if the fund’s performance or market conditions improve [5]. However, the discount also implies that investors are paying less than the fund’s underlying assets, which could be a positive for long-term value. A would provide further clarity on whether the current discount is an anomaly or part of a broader pattern.

Conclusion: Weighing the Risks and Rewards

CSQ’s 6.65% yield and strategic leverage position it as a compelling option for income investors, particularly those comfortable with moderate risk. The fund’s conservative leverage ratios and diversified portfolio offer a buffer against volatility, while the current market discount may enhance value. However, the reliance on return-of-capital distributions and the use of derivatives necessitate careful scrutiny. Investors should prioritize monitoring the fund’s earnings sustainability and macroeconomic trends that could impact its leverage and discount dynamics.

For those seeking a high-yield vehicle with a balanced approach to risk, CSQ could be a viable addition to a diversified portfolio—provided its risks are fully understood and aligned with individual investment goals.

**Source:[1] Strategic Total Return Fund - CSQ
https://www.calamos.com/funds/closed-end/strategic-total-return-csq/[2] CSQ Calamos Strategic Total Return, closed-end fund
https://www.cefconnect.com/fund/CSQ[3] Calamos Strategic Total Return Fund (CSQ) Stock Historical
https://finance.yahoo.com/quote/CSQ/history/[4] Calamos Investments Closed-End Funds (NASDAQ: CHI, ...
https://www.prnewswire.com/news-releases/calamos-investments-closed-end-funds-nasdaq-chi-chy-csq-cgo-chw-ccd-and-cpz-announce-monthly-distributions-and-required-notifications-of-sources-of-distribution-302519929.html[5] CSQ Calamos Strategic Total Return, closed-end fund summary
https://public-cefconnect-at.uat.nuveen.com/fund/CSQ