HTD: A High-Yield Dividend Play in a Low-Interest-Rate World

In an era where central banks have slashed interest rates to near-zero levels, income-focused investors face a paradox: yields on traditional fixed-income assets remain anemic, while riskier alternatives like high-yield bonds and REITs have surged in appeal. Enter the John Hancock Tax-Advantaged Dividend Income Fund (HTD), a closed-end fund that has carved out a niche as a consistent high-yield generator. With a current yield of 7.69% and a managed distribution plan, HTD offers a compelling case for investors seeking income in a low-rate environment-though its performance over the past year underscores the need for caution.

The Mechanics of HTD's Dividend Engine

HTD's allure lies in its structured approach to income distribution. The fund pays a fixed monthly dividend of $0.1380 per share, translating to an annualized yield of 7.69% based on its current share price, per the HTD dividend page. This consistency is underpinned by a managed distribution plan, which prioritizes net investment income as the primary source of payouts. For February 2025, 93% of the distribution came from income, with the remainder drawn from capital gains and a nominal return of capital, according to the fund's notice to shareholders. While the return of capital component-essentially a return of the investor's original principal-reduces the fund's net asset value (NAV), it also signals that HTD is leveraging its portfolio's growth to sustain payouts without overreliance on earnings, as explained in distribution sources.

This model contrasts sharply with REITs, which derive income from rental cash flows and property appreciation. In low-rate environments, REITs benefit from cheaper borrowing costs, enabling them to expand portfolios and boost dividends. For instance, industrial and healthcare REITs have outperformed peers in 2025, with the FTSE Nareit All Equity REITs index rising 5.3% year-to-date, according to the FTSE Nareit index. Yet HTD's yield remains competitive, particularly against high-yield bonds, which currently offer an average yield of 7.2% in the U.S. and 5.6% in Europe, according to Morgan Stanley.

Performance in a Low-Rate Environment: Resilience and Volatility

HTD's track record in recent years reveals both its strengths and vulnerabilities. In 2023, the fund posted a dismal -9.93% total return, lagging behind its Morningstar category average of 10.55%, according to CEF Connect. This underperformance was driven by a challenging credit market and the fund's exposure to leveraged loans. However, 2024 marked a rebound, with HTD surging 25.70%-well above the category's 16.46%-as interest rates stabilized and high-yield spreads tightened, according to CEF Connect. Year-to-date through July 2025, HTD has gained 15.10%, outpacing the 7.73% return of its peers, per CEF Connect data.

This volatility highlights a key distinction between HTD and REITs. While REITs benefit from long-term lease structures and stable cash flows, HTD's performance is more sensitive to macroeconomic shifts. For example, the Federal Reserve's rate cuts in 2024 and 2025-from 5.3% to 4.3%-boosted HTD's appeal by making high-yield assets more attractive relative to Treasuries, according to federal funds rate data. Yet the fund's reliance on leveraged loans and corporate bonds exposes it to credit risk, particularly in a recessionary scenario.

Comparing HTD to Alternatives: Yield vs. Risk

To assess HTD's appeal, consider its position relative to high-yield bonds and REITs. High-yield bond funds have outperformed HTD in some periods, with returns of 8.99% over the past 12 months as of February 2025, according to Morningstar. These funds, however, carry higher default risk, as evidenced by the 6%–8% average yield of their holdings, per Accounting Insights. REITs, meanwhile, offer a hybrid of income and growth potential. Industrial REITs, for instance, have thrived on e-commerce demand and low borrowing costs, delivering 9.48% annualized returns in the 12 months following rate cuts, according to Invesco.

HTD's edge lies in its tax-advantaged structure. By focusing on dividend-paying equities and fixed-income securities, the fund minimizes taxable capital gains, a critical consideration for investors in higher tax brackets. In contrast, REITs are required to distribute at least 90% of their taxable income, often resulting in ordinary income and unrelated business income tax (UBIT) liabilities for certain investors, according to Wealth Management.

The Road Ahead: Balancing Yield and Caution

As the Federal Reserve maintains a dovish stance, HTD's 7.69% yield remains attractive. However, investors must weigh this against the fund's historical volatility and the potential for credit stress in its portfolio. For those seeking a stable income stream, HTD offers a compelling alternative to traditional high-yield bonds and REITs-provided they accept the trade-off between yield and risk.

In the end, HTD exemplifies the evolving landscape of income investing. In a world where low rates have rendered savings accounts obsolete, the fund's structured payouts and tax efficiency make it a standout option. Yet as with any high-yield strategy, due diligence is paramount. The key lies in aligning HTD's characteristics with an investor's risk tolerance and time horizon-a calculus that becomes ever more critical in an era of market uncertainty.