HTD: A 7% Yield Machine With Lessons From Past Shocks

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The John Hancock Tax-Advantaged Dividend Income Fund (HTD) has long been a staple for income-focused investors, offering a compelling 7.73% yield as of September 2025, according to CEF Connect. However, in volatile markets, the sustainability of such high yields and the fund's ability to withstand shocks are critical considerations. By examining HTD's historical performance during the 2008 financial crisis and the 2020 pandemic, as well as its strategic adjustments post-crisis, we can assess whether this 7% yield machine is built to endure-or if it risks becoming a casualty of the next downturn.

Yield Sustainability: A Test of Resilience

HTD's managed distribution strategy, which pays $0.1580 monthly (or $1.90 annually), has been a cornerstone of its appeal, according to StockAnalysis. However, the fund's ability to maintain this payout has faced scrutiny during past crises. During the 2008 financial crisis, HTD's total return plummeted by -35.26%, and in 2020, it dropped -16.60% amid pandemic-driven market turmoil (CEF Connect data). These declines raised questions about the fund's capacity to sustain dividends when liquidity dries up and asset values crater.

The fund's response to these challenges has been multifaceted. Post-2020, HTD adjusted its distribution strategy to balance net investment income with long-term capital gains, ensuring a steady payout even as market conditions shifted, according to a John Hancock press release. For instance, in 2020, the fund reduced its monthly distribution to $0.1380 per share but later increased it by 15% to $0.1580 in 2025, reflecting confidence in its ability to generate consistent returns, as announced in a John Hancock amendment. This adaptability underscores HTD's focus on yield sustainability, though investors must remain cautious about the role of return of capital in sustaining payouts during prolonged downturns.

Downside Resilience: Lessons From 2008 and 2020

HTD's historical performance reveals a mixed picture of resilience. During the 2008 crisis, the fund's heavy exposure to dividend-paying equities and preferred stocks left it vulnerable to systemic risk, as these assets often lack the liquidity to weather rapid sell-offs, according to an MSCI analysis. The fund's 31.22% leverage further amplified losses, as leveraged positions tend to underperform in bear markets, per Morningstar portfolio data. In contrast, the 2020 pandemic presented a different challenge: a sharp but short-lived drawdown driven by supply-side shocks. HTD's -16.60% return in 2020 paled in comparison to the -35.26% loss in 2008, suggesting that the fund's post-2008 portfolio adjustments-such as increased diversification into defensive sectors like utilities and high-quality bonds-helped mitigate losses (CEF Connect data).

A key factor in HTD's improved resilience is its strategic use of leverage. While leverage can exacerbate losses during liquidity-driven crises (e.g., 2008), it can also enhance returns during recovery phases if managed prudently, as argued in a ResonanzCapital piece. HTD's 31.22% leverage ratio, though high, is offset by its focus on tax-advantaged dividends and a diversified portfolio spanning 15 sectors (CEF Connect data). This mix of high-yield equities, preferred stocks, and bonds provides a buffer against sector-specific shocks, a lesson learned from the 2008 crisis when concentrated portfolios in financials collapsed.

Portfolio Adjustments: Building a Safer Yield Machine

Post-2008 and post-2020, HTD has recalibrated its portfolio to prioritize downside protection. As of August 2025, the fund allocates 55.97% to stocks, 18.85% to preferred securities, and 21.62% to bonds, according to YCharts. This shift toward fixed-income assets, particularly high-quality bonds, contrasts with the pre-2008 era, when the fund was more heavily weighted toward equities. The inclusion of bonds has reduced volatility, as evidenced by the fund's 18.14% total return on NAV over the previous 12 months (CEF Connect data).

Another critical adjustment has been the fund's emphasis on tax efficiency. By focusing on companies that qualify for the 15% qualified dividend tax rate, HTD enhances after-tax returns for investors-a feature that becomes even more valuable during periods of high inflation or rising tax rates, per John Hancock Investments. This tax-advantaged strategy also aligns with the fund's long-term goal of preserving capital while generating income, a necessity in an environment where traditional 60/40 portfolios have struggled with rising interest rates, informed by FSB reforms.

The Road Ahead: Balancing Yield and Risk

While HTD's 7.73% yield is attractive, investors must weigh it against the fund's structural risks. The current -5.87% discount to NAV suggests market skepticism about its ability to fully recover from future shocks (CEF Connect data). Additionally, the fund's reliance on leverage and its exposure to high-yield equities mean it remains vulnerable to macroeconomic downturns. However, its post-crisis adjustments-such as diversification into defensive sectors, a balanced asset mix, and a flexible distribution strategy-position it as a more resilient option than in previous cycles.

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Conclusion

HTD's 7% yield is a double-edged sword: it offers compelling income but requires careful scrutiny of the fund's ability to sustain payouts and protect capital. Historical performance during 2008 and 2020 highlights both vulnerabilities and strengths, with the fund's post-crisis adjustments improving its resilience. For investors willing to accept the risks of leverage and market volatility, HTD remains a viable option for tax-efficient income. However, in an era of unpredictable shocks, the fund's future success will depend on its ability to adapt its portfolio and distribution strategy to evolving market conditions.