Invesco High Income Trust II and Invesco Senior Income Trust: Dividend Payments and Investment Strategies

As an investor, you're always on the lookout for opportunities to grow your wealth and secure a steady income stream. Two funds that have caught the eye of many investors are Invesco High Income Trust II (VLT) and Invesco Senior Income Trust (VVR). Both funds recently announced their dividend payments, offering investors a chance to evaluate their investment strategies and potential benefits. Let's dive into the details and explore how these funds align with different investment objectives and risk tolerances.

Invesco High Income Trust II (VLT)

VLT aims to provide a high level of current income by investing in a diversified portfolio of income-generating securities, such as mortgage-backed securities, corporate bonds, and other income-producing assets. Its Managed Distribution Plan targets an 8.5% distribution rate based on the closing market price per share as of August 1, 2018. VLT's dividend payouts reflect this objective, with a monthly distribution of $0.09641 per share, estimated to be 64.42% from net investment income and 35.58% from return of principal.



VLT's investment strategy focuses on generating current income, making it an attractive option for investors seeking high dividend yields. However, its higher dividend yield and focus on mortgage-backed securities may expose the fund to higher volatility and potential capital losses, which could impact its ability to maintain its high dividend yield.

Invesco Senior Income Trust (VVR)

VVR seeks to generate a steady stream of income with a lower level of risk by investing in a diversified portfolio of income-generating securities, with a focus on higher-quality, lower-risk assets. Its Managed Distribution Plan aims to provide a consistent, but not guaranteed, periodic cash payment to shareholders, regardless of when or whether income is earned, or capital gains are realized. VVR's dividend payouts align with this objective, with a monthly distribution of $0.03801 per share, estimated to be 78.16% from net investment income and 21.84% from return of principal.



VVR's investment strategy focuses on providing a steady income stream with a lower level of risk, making it an appealing choice for investors looking for a balance between income and growth, or those with a longer investment horizon. Its diversified portfolio reduces its exposure to any single risk factor, which may result in more stable performance and a lower dividend yield.

Managed Distribution Plans: Impact on Market Prices and Capital Appreciation

Both funds operate under Managed Distribution Plans, which aim to provide shareholders with a consistent cash payment regardless of the fund's income or capital gains. These plans may have the effect of narrowing the discount between each fund's market price and its net asset value (NAV), potentially making the shares more attractive to investors. However, there is no assurance that these plans will be effective in this regard.

For VLT, the managed distribution plan targets an 8.5% distribution rate based on the fund's market price. This plan may help to maintain a more stable market price for the fund's shares, as investors can rely on a consistent dividend payment. However, if the fund's investment income is not sufficient to cover the intended monthly distribution, it may distribute long-term capital gains and/or return of capital to maintain the managed distribution level. This could potentially lead to a higher tax burden for shareholders, as capital gains distributions are typically taxed as ordinary income.

For VVR, the managed distribution plan has been subject to periodic review and adjustments. In 2023, the fund increased its monthly distribution amount to $0.0430 per share, up from $0.0390 per share. This increase may have positively impacted the fund's market price, as it offered a higher dividend yield to potential investors. However, the fund's Board may terminate or amend the terms of the plan at any time without prior notice to shareholders, which could have an adverse effect on the fund's market price.

In summary, while managed distribution plans can potentially influence the market prices of these funds by narrowing the discount between their market price and NAV, there is no guarantee that these plans will be effective. Additionally, the plans may have unintended consequences, such as a higher tax burden for shareholders or potential adverse effects on the fund's market price if the plan is terminated or amended. Therefore, while these plans may offer some benefits, they also come with risks and uncertainties.

As an investor, it's essential to carefully consider your investment objectives, risk tolerance, and time horizon when evaluating funds like VLT and VVR. Both funds offer unique benefits and potential drawbacks, and their managed distribution plans may impact their market prices and capital appreciation prospects. By understanding the funds' investment strategies, dividend payouts, and managed distribution plans, you can make a more informed decision about whether these funds align with your investment goals and risk preferences.