The Steady Income Machine: Why NHS's High-Yield Dividends Defy the Odds in Turbulent Markets

In a world where market volatility feels like the new normal, income-focused investors are on the hunt for assets that deliver reliable payouts. Enter the Neuberger Berman High Yield Strategies Fund (NYSE: NHS), a closed-end fund that has turned heads with its 14.54% dividend yield as of June 2025. But what makes this fund's dividend policy sustainable in choppy waters? Let's dive into the numbers and uncover why NHS could be a cornerstone of your income portfolio—if you're prepared to navigate its risks.

A Dividend Machine in Action

NHS has built its reputation on a level distribution policy, maintaining a steady $0.0905 monthly payout since early 2023. This consistency translates to an annualized dividend of $1.086 per share, a yield that soars to 14.5% based on its recent price of $7.68. But how has it sustained this in volatile markets?

The Numbers Tell the Story

• 2020: Yield of 11.04%, with dividends at $0.0831/month.
• 2023: Yield jumps to 14.31% as the stock price dips to $7.59.
• 2025: Current yield of 14.54%, with dividends unchanged since 2023.

The yield's rise isn't just about dividends—it's also driven by the fund's falling stock price (from $9.03 in 2020 to $7.68 in 2025). For income investors, this creates a golden opportunity: a higher yield now means more cash flow per dollar invested.

Why the Dividends Hold Steady

NHS's secret lies in its high-yield debt portfolio, focusing on sectors like utilities, healthcare, and energy—areas where companies often prioritize dividends. The fund's strategy of monthly distributions (vs. quarterly for most funds) also provides consistent cash flow to investors.

But what about risks? Let's break it down:

1. Sector Exposure:

NHS invests in high-yield bonds (junk bonds), which carry credit risk. However, the fund's diversification across sectors (e.g., utilities are recession-resistant, while energy benefits from rising commodity prices) helps mitigate single-sector downturns.

2. Leverage:

Like many closed-end funds, NHS uses leverage (borrowed money) to amplify returns. This can be a double-edged sword. While it boosts income during upswings, it could strain the fund during a prolonged market slump.

3. Distribution Composition:

The fund's dividends aren't all “safe” income. A portion may come from return of capital (ROIC)—essentially returning your principal—as noted in its SEC filings. Over-reliance on ROIC is a red flag, but NHS has kept this component minimal, focusing on net investment income and capital gains.

Risks That Could Shake the Dividend Machine

No investment is without risk, and NHS is no exception:

• Interest Rate Sensitivity: High-yield bonds suffer when rates rise. If the Fed hikes rates further, bond prices could drop, squeezing the fund's NAV.
• Credit Downgrades: Defaults in its portfolio (e.g., energy or retail bonds) could destabilize income.
• Leverage Costs: Rising borrowing costs could eat into profits, forcing a dividend cut.

The Bottom Line: A High-Yield Gamble Worth Taking?

NHS's 14.5% yield is a siren song for income investors, but it's not for the faint-hearted. The fund's long track record (since 1972) and Neuberger Berman's $515B asset management expertise provide a foundation of trust. However, the risks—leverage, credit exposure, and ROIC—are real.

Action Steps for Investors:
1. Buy Before the Ex-Dividend Date: To capture the next payout (next ex-date likely in July 2025), ensure you own shares before the record date.
2. Dollar-Cost Average: Avoid putting too much capital in at once; spread purchases over months to mitigate price volatility.
3. Monitor Leverage and ROIC: If the fund starts using excessive leverage or ROIC rises, it's time to reassess.

Final Verdict

NHS is a high-risk, high-reward play for income investors. Its unwavering dividend policy in turbulent markets makes it a standout in a low-yield world, but only if you're prepared to accept the risks. For those with a long-term horizon and a stomach for volatility, this fund could be the income engine your portfolio needs.

Act fast—the market won't wait.