Invesco Trust for Investment Grade Municipals: A High-Yield Dividend Amid Market Volatility

The Invesco Trust for Investment Grade Municipals (VGM) has declared a monthly dividend of $0.06461 per share for May 2025, marking a continuation of its steady income distribution strategy. With an annualized yield of 7.98%—based on its May 30 closing price of $9.71—the fund offers a compelling income opportunity. However, investors must weigh this high yield against structural risks, including potential return of principal and market volatility.

Dividend Details and Yield

The May dividend, payable on May 30 to shareholders of record as of May 16, brings VGM’s annualized yield to 7.98%. This compares favorably to the average yield of investment-grade municipal bond ETFs, which currently hover around 4.5%. However, a critical caveat is embedded in the announcement: a portion of this distribution may come from a return of principal, not net income. While this does not reduce the immediate cash flow, it implies a gradual erosion of the investor’s cost basis. The exact breakdown will be disclosed in the fund’s Section 19 Notice, available on Invesco’s website.

Stock Performance and Institutional Activity

VGM’s stock price closed at $9.72 on May 2, the day of the dividend announcement, up 0.31% from the prior session. This marked the third consecutive day of gains, with trading volume at 103,053 shares—a modest increase but within its typical range. Over the past year, the stock has underperformed the broader market, rising 9.3% versus the S&P 500’s 13.6% gain. However, in the short term, it has outperformed: the S&P 500 fell 5.5% in the first quarter of 2025, while VGM declined just 2.0%.

Institutional investors appear confident in the fund’s prospects. Raymond James Financial Inc. and Invesco Ltd. increased their holdings in Q4 2024, with purchases totaling $2.11 million and $13.96 million, respectively. This activity suggests that large players view VGM as a reliable income source despite its underperformance in volatile markets.

Risks and Considerations

1. Return of Principal: The fund’s high yield is partly subsidized by returning capital to investors. Over time, this can reduce the NAV and increase the risk of principal loss, especially if distributions exceed earnings.
2. Closed-End Fund Structure: VGM trades at market prices, which often deviate from its NAV. As of May 2025, its 50-day moving average was $9.85, while its 200-day average was $10.07—a sign of a downward trend.
3. Tax Implications: While municipal bonds are tax-exempt at the federal level, returns of principal are not taxable income. However, capital gains taxes may apply if the adjusted cost basis drops below zero.
4. Market Sensitivity: With a beta of 0.06, VGM is insulated from broader market swings. Its correlation to the S&P 500 (via SPY) is minimal (0.01), making it a defensive holding.

Technical Analysis and Forecasts

Analysts project a cautious outlook for VGM in the coming months. The stock faces resistance at $9.77 (the 200-day moving average) and support at $9.59. A 3-month forecast predicts a potential decline of 7.22%, with a 90% probability of trading between $8.62 and $9.16 by late July. Short-term traders may use a stop-loss at $9.29 to mitigate risk, while long-term holders should focus on the fund’s income profile.

Conclusion: A High-Yield Play with Caveats

The Invesco Trust for Investment Grade Municipals offers a rare 8% yield in an environment where traditional fixed-income instruments struggle to keep pace with inflation. Yet, investors must recognize the trade-offs:
- Income vs. Principal Risk: The return of principal component reduces the fund’s sustainability over the long term.
- Market Volatility: While its low beta shields it from systemic risks, its closed-end structure exposes investors to price swings unrelated to NAV.
- Tax Complexity: Investors must track cost basis adjustments meticulously to avoid unexpected tax liabilities.

For income-focused portfolios seeking tax-exempt cash flow, VGM merits consideration—provided investors acknowledge its limitations. The fund’s appeal lies in its dividend consistency, but its success hinges on the trust’s ability to maintain distributions without excessive erosion of capital. As of May 2025, the stock’s valuation and institutional support suggest this balance is achievable, but vigilance is required.

In sum, VGM is a niche play for disciplined investors willing to trade principal stability for outsized income. For others, it may be a risky bet in an uncertain interest rate environment.