Invesco High Income Trust II Maintains Dividend Amid Market Volatility

Invesco High Income Trust II (NYSE: VLT) has announced its monthly dividend of $0.09641 per share, maintaining consistency with prior distributions under its Managed Distribution Plan. This decision underscores the fund’s commitment to predictable income streams for investors, even as it navigates risks tied to market volatility and evolving interest rates. Below is an analysis of the dividend’s implications, the fund’s distribution strategy, and the outlook for investors.

The Dividend Details and Managed Distribution Plan

The May 2025 dividend, payable on May 30, follows the same amount as previous months, with no change from the prior distribution. The ex-dividend date and record date are both set for May 16, aligning with the fund’s monthly payout schedule. Key to understanding this dividend is the Managed Distribution Plan, approved in 2018, which guarantees an 8.5% annualized distribution rate based on the closing market price as of the plan’s inception.

However, this fixed rate comes with caveats. A portion of the dividend may be a return of principal, meaning investors receive back a fraction of their initial investment rather than earnings from the fund’s operations. For example, in February 2025, 25% of VLT’s distribution was return of capital, while the remainder stemmed from net investment income. While this ensures steady cash flows, it reduces shareholders’ cost basis and may lead to tax liabilities, as return of capital is not taxed as income but erodes equity.

Risks and Considerations for Investors

VLT’s high yield carries significant risks. The fund invests heavily in below-investment-grade securities, exposing it to credit risk in a weakening economy. Additionally, interest-rate sensitivity poses a threat: rising rates typically depress bond prices, which could reduce the fund’s net asset value (NAV) and, by extension, its ability to sustain the 8.5% distribution rate.

The use of leverage further amplifies volatility. While leverage can boost returns in favorable markets, it magnifies losses during downturns. Shareholders should also note that the fund’s market price often deviates from NAV, trading at premiums or discounts that add uncertainty to total returns.

Market Performance and Forecasted Trends

Recent data highlights VLT’s price dynamics. As of May 2025, the fund’s adjusted closing price hovered around $10.46 on May 2, slightly down from $10.48 earlier in the month. Algorithmic forecasts suggest a narrow trading range between $10.65 and $10.90 for the remainder of May, with a year-to-date outlook projecting a modest decline from February’s $10.94 to an average May price of ~$10.89.

Balancing Yield and Reality

While VLT’s 8.5% distribution rate is enticing, investors must weigh it against structural challenges. The fund’s reliance on return of capital—particularly if it grows as income diminishes—could erode long-term value. For instance, if the May 2025 distribution mirrors February’s composition, $0.024 of the dividend would return principal, reducing investors’ equity over time.

Moreover, the Managed Distribution Plan’s lack of flexibility is a double-edged sword. While it ensures steady payments, it may force distributions from capital gains or return of principal during lean periods, which could mislead investors about the fund’s true performance.

Conclusion

Invesco High Income Trust II remains a viable option for income-focused investors seeking monthly cash flows, but its appeal hinges on careful risk management. The $0.0964 dividend aligns with the fund’s 8.5% distribution target, yet investors must acknowledge the role of return of capital and the fragility of its underlying holdings.

Key takeaways:
- Yield Consistency: The fixed 8.5% rate provides predictability, though it is not tied to current market prices.
- Risk Factors: Credit exposure, interest-rate sensitivity, and leverage warrant close monitoring.
- Price Outlook: Forecasts suggest VLT will trade in a narrow range, but deviations from NAV could amplify gains or losses.

For now, VLT’s dividend maintains its allure for income seekers willing to tolerate volatility. However, the fund’s long-term viability depends on its ability to generate sufficient income—without over-relying on return of capital—to sustain payouts in a shifting economic landscape.