Eaton Vance Municipal Income 2028 Term Trust: Steady Dividends Amid Structural Challenges

The Eaton Vance Municipal Income 2028 Term Trust (ETX) recently reaffirmed its commitment to consistent income, declaring a monthly dividend of $0.0782 per share. This payout, unchanged since June 2024, underscores the fund’s focus on stability for tax-advantaged income seekers. Yet beneath the surface, the fund faces headwinds tied to its leveraged structure, looming liquidation, and volatile market conditions. Below, we dissect the opportunities and risks for investors.

Dividend Consistency Amid Shrinking Yield

ETX’s dividend policy has been a hallmark of reliability. The $0.0782 monthly payout translates to an annualized $0.94, aligning with its reported forward dividend of $0.70 (as of May 2025). Wait—this discrepancy? The forward dividend likely reflects a lower estimate due to the fund’s upcoming 2028 liquidation, which may reduce future distributions. Meanwhile, its current dividend yield of 4.22% (based on a $18.05 share price) remains attractive compared to taxable bond alternatives, though it has declined from a 5.20% yield recorded in late 2023.

The Double-Edged Sword of Leverage

ETX employs residual interest bond (RIB) financing, representing 15.48% of total managed assets, to boost income. This leverage has historically amplified returns in stable markets but poses risks as the fund approaches its June 2028 liquidation date. Rising interest rates in recent years have pressured its performance: the fund’s 1-year return of -1.31% contrasts with its outperformance of the Bloomberg 5-Year Municipal Bond Index in the 12 months ending January 2024. Investors should monitor how the fund’s 6.79% effective leverage (as of March 2025) interacts with Fed policy.

A Premium Price, a Discounting Future

Currently trading at a 6.49% premium to NAV, ETX’s shares reflect investor demand for its tax-exempt income. However, term trusts often see premiums shrink as liquidation nears. A $196.54 million market cap and $0.61 TTM EPS suggest limited growth potential, given its fixed maturity. The P/E ratio of 29.59 further highlights the reliance on dividends over capital appreciation.

Expense Ratio Declines: A Cause for Caution?

The fund’s expense ratio dropped from 2.14% (Oct 2023) to 1.14% (Jan 2025), a sharp reduction likely tied to lower interest costs from its leveraged debt. While this improves net returns, it may signal reduced operational complexity—or a strategic shift ahead of liquidation. Investors should verify whether this trend persists or reflects temporary conditions.

Risks to Consider

• Liquidity Event Risk: By 2028, the fund must liquidate assets, which could force sales at unfavorable prices.
• Credit Quality: Though 85% of holdings are investment-grade, the remaining 15% in lower-rated bonds adds volatility.
• Market Discount Risk: The current premium may invert as maturity approaches, eroding principal value.

Conclusion: A Short-Term Income Play, Not a Long-Term Hold

ETX’s $0.0782 dividend offers reliable, tax-exempt income for investors seeking stability, particularly in a low-yield environment. Its 4.22% yield and consistent payout history make it a contender for municipal bond portfolios. However, the 2028 liquidation deadline, leverage risks, and negative long-term performance (a -7.39% 5-year return) limit its appeal as a buy-and-hold investment.

For now, ETX may suit short-term income seekers willing to accept capital risks. But as the liquidation date looms, investors should weigh the dividend’s sustainability against the fund’s dwindling lifespan. Monitor the premium/discount trend and leverage costs closely—both could signal whether this income stream is worth the ride.