John Hancock Income Securities Trust (JHS): A High-Yield Opportunity with Utilities Stability—But Tax Caution Advised

The John Hancock Income Securities Trust (JHS) is poised to deliver its next quarterly distribution of $0.1435 per share on June 30, offering investors a 4.67% forward yield at current prices. This closed-end fund's focus on utilities and fixed-income securities positions it as a compelling income play, especially in a low-rate environment. However, the sustainability of its payouts and tax implications demand careful scrutiny.

Dividend Structure and Return of Capital Risks

JHS's distribution structure is underpinned by its managed distribution plan, which aims to provide steady income through a mix of net investment income, capital gains, and, in some cases, return of capital (ROC). While the June 30 payout's annualized yield at market price is 5.09%, investors must note that a portion of this distribution may come from ROC—a component that reduces shareholders' cost basis and is not tax-deductible.

The fund has maintained consistent quarterly payouts, with a +0.8% year-over-year increase in its latest distribution. However, the exact proportion of ROC in the June 2025 payment remains undisclosed until the post-payment notice. This uncertainty highlights the need to monitor the fund's tax notices and the final Form 1/1099-DIV issued in early 2026 for precise tax reporting.

Utilities Sector Exposure: A Defensive Anchor

JHS's 85% allocation to utilities—specifically electric utilities (65%) and multi-utilities (26%)—provides a stable income base. Top holdings like NextEra Energy, Xcel Energy, and CenterPoint Energy benefit from regulated rate hikes and infrastructure investments. These companies are modernizing grids, expanding renewable energy projects, and capitalizing on rising electricity demand from data centers and EV adoption.

Utilities have historically acted as a recession-resistant shield, offering steady cash flows even in economic downturns. JHS's focus aligns with this resilience, though rising interest rates and equity dilution (due to capital raises) pose headwinds.

Tax Considerations: Navigating Return of Capital

While JHS's distributions may include ROC, this component is not taxable income in the year received. Instead, it reduces the investor's cost basis, potentially triggering capital gains taxes when shares are sold. For example, if a shareholder's cost basis is eroded to zero, subsequent distributions may be fully taxable.

Action Steps for Tax Planning:
1. Track ROC Notices: Review the post-payment notice mailed by JHS to estimate ROC proportions.
2. Adjust Cost Basis: Use tax software to update cost basis after receiving the 1099-DIV.
3. Hold for the Long Term: Avoid frequent trading to minimize capital gains exposure.

Why Invest Now?

• High Yield: The 4.67% forward yield exceeds the 10-year Treasury rate (~4.2%) and most corporate bond indices.
• Sector Strength: Utilities' $186B+ annual capital spending (2024) ensures steady income growth.
• Managed Distribution Flexibility: JHS's plan allows adjustments to preserve payouts during volatile markets.

Risks to Monitor

• Regulatory Shifts: Changes to clean energy incentives or permitting rules could disrupt project timelines.
• Interest Rates: Rising rates may compress utility valuations, though dividend growth (median 5-7% annually) offers a buffer.
• ROC Dependency: If ROC占比 exceeds 20% of distributions, income sustainability could come into question.

Conclusion: A Balanced Bet on Income and Resilience

John Hancock Income Securities Trust (JHS) offers a compelling entry point for income seekers, combining a 5.09% yield with utilities' defensive profile. While ROC components add complexity, the fund's focus on regulated utilities and infrastructure investments positions it to weather economic cycles. Investors should prioritize long-term holding and diligent tax tracking to maximize returns.

Act Before June 12: The ex-dividend date approaches—consider a position in JHS to lock in the June 30 payout and capitalize on utilities' growth tailwinds.