FSCO's 11.2% Yield: A Steady Income Stream in a Rising Rate Environment

The hunt for high-yield income in a rising rate environment has become increasingly challenging for investors. FS Credit Opportunities Corp. (FSCO), a closed-end fund focused on alternative credit strategies, has emerged as a standout option, delivering an 11.2% dividend yield as of June 30, 2025. But can this fund sustain its payouts amid tighter monetary policy? A closer look at its financial metrics, distribution history, and portfolio strategy reveals a compelling case for income-focused investors.

Dividend Sustainability: Backed by Strong Income Generation

FSCO's 11.2% yield is not a mirage. The fund has maintained full coverage of its distributions by net investment income on a tax basis throughout 2025, a critical metric for sustainability. Unlike some high-yield funds that return investor capital to fund payouts, FSCO's distributions are sourced entirely from its earnings. This distinction reduces the risk of dividend cuts and positions the fund as a safer income play.

The fund's year-to-date NAV return of 7.6% through June 2025 underscores its ability to generate both income and capital appreciation. Even more striking is the 12.5% market price return over the same period, reflecting strong investor demand for its high yield.

Strategic Focus on Alternative Credit Opportunities

FSCO's outperformance stems from its niche strategy: investing in event-driven credit, special situations, and private capital solutions. These areas, often overlooked by traditional lenders, offer higher yields and shorter duration profiles—key advantages in a rising rate environment. As of early 2025, 81% of its portfolio was in senior secured debt, with 54% in floating-rate assets, which mitigate interest rate risk.

The fund's top holdings include stakes in entities like New Giving Acquisition, Inc. and Monitronics International, LLC, highlighting its focus on sectors like healthcare and consumer durables. This diversification, combined with a $2.2 billion asset base, provides a stable foundation for income generation.

Why Now? Capturing the July Distribution

Investors who act quickly can still secure the July 2025 distribution, payable on July 31. To qualify, shares must be owned by the July 24 ex-date. Historical backtests from 2022 to 2025 show that holding FSCO around its ex-dividend dates produced a 3-day win rate of 100%, with maximum returns of $0.07 per share, reinforcing the effectiveness of this timing strategy. This timing creates a clear “buy before” opportunity for income seekers.

FSCO's recent distribution history further bolsters its appeal. In June 2025, the fund increased its monthly payout by 5.1% to $0.0678 per share—the fourth hike in 24 months. This trajectory, driven by strong portfolio performance, suggests management is confident in its ability to grow income over time.

Risks and Considerations

No investment is risk-free. FSCO's 7.5% annual operating expenses are elevated compared to broad bond funds, though justified by its active, specialized strategy. Additionally, non-traditional credit investments carry default risks, and the fund's closed-end structure means its market price can deviate from NAV.

However, FSCO's consistent dividend coverage and NAV growth to date suggest these risks are being managed effectively. The fund's focus on senior secured loans and shorter-duration assets also reduces exposure to prolonged rate hikes.

The Case for Immediate Action

For income investors, FSCO offers a rare combination: double-digit yields, rising distributions, and a track record of income sustainability. With traditional bonds yielding under 5% and equities volatile, FSCO's 11.2% yield provides a compelling alternative.

The upcoming July distribution—payable to shareholders owning shares before July 24—adds urgency. Investors who act now can lock in this high yield while benefiting from FSCO's proven ability to navigate a challenging rate environment.

Final Take: FSCO is a top-tier income play for investors willing to embrace non-traditional credit strategies. While risks exist, the fund's robust coverage ratio, strong NAV performance, and strategic focus justify a place in income portfolios. Consider buying before July 24 to capture the July distribution.