Risky Math Behind Western Asset's 6.8% Dividend: Is Inflation Protection Worth the Trade-Off?

In a world of dwindling yields, the Western Asset Inflation-Linked Income Fund (WIA) stands out with its 6.78% annualized distribution rate—a figure that has lured income-starved investors. But behind the allure lies a stark reality: the fund's 5-year average annual total return of just 2.56% raises critical questions about sustainability. How does WIA sustain such a high payout? And what does it mean for long-term investors? Let's unpack the math.

The Managed Distribution Policy: A High-Wire Act

WIA's strategy hinges on its managed distribution policy, which guarantees steady monthly payouts. As of May 2025, its latest distribution of $0.0520 per share is fully sourced from net investment income, avoiding return of capital (ROC). Yet, the fund's warning is clear: if income or capital gains falter, ROC could enter the mix.

This precarious balance is underscored by the fund's distribution rate (6.78%) far exceeding its 5-year total return (2.56%). The gap implies that even without ROC, the fund's NAV would erode over time unless returns improve—a risk magnified by its defensive, inflation-focused portfolio.