Unlock Tax-Advantaged Income with MFS High Yield Municipal Trust (CMU): A Dividend Powerhouse at a Discount

In the search for high-yield, tax-efficient income streams, the MFS High Yield Municipal Trust (NYSE: CMU) stands out as a compelling opportunity. With a 5.91% forward yield, an upcoming June 17 ex-dividend date, and a 9.57% discount to NAV, CMU offers income-focused investors a rare combination of attractive returns, tax benefits, and valuation upside. Let's dissect why now is a critical time to act.

Dividend Reliability: Pure Income, No Return of Capital

CMU's $0.01650 monthly distribution, fully sourced from ordinary income, marks a key advantage over peers. Unlike many closed-end funds (CEFs) with managed distribution plans—which may force returns of capital to sustain payouts—CMU's distributions are income-driven. This eliminates the erosion of tax basis and ensures payouts reflect true performance. The June 17 ex-dividend date creates a clear deadline for investors to lock in this tax-advantaged income.

Tax Efficiency: Federal Exemption with Strategic Value

Distributions from CMU are exempt from federal income tax, making them ideal for taxable accounts. While state taxes may apply depending on the bond issuers, the fund's broad municipal bond portfolio (98.73% allocated to tax-exempt securities) minimizes geographic concentration risk. Investors should note that final tax characterization will be reported in Form 1099-DIV, but the absence of return of capital in this distribution reduces complexity.

NAV Discount: A Margin of Safety

As of June 2, 2025, CMU trades at a $3.59 share price versus a $3.97 NAV, a 9.57% discount. This discount has persisted historically, averaging -9.0% industry-wide for municipal CEFs (per Q4 2024 data). The discount creates a dual opportunity: capital appreciation if the discount narrows and enhanced income via the elevated yield. Compare this to peers like CXE (9.17% discount) and CXH (7.85% discount), where CMU's higher yield and consistent discount make it a standout.

Peer Comparison: Why CMU Edges Out CXE and CXH

• CXE (MFS High Income Municipal Trust):
• Yield: 4.85% (NAV-based), 5.13% (share price).
• Risk: Similar leverage (37.22%) and credit exposure to below-investment-grade bonds.

• Discount: -9.17% (Sept 2024 data).

• CXH (MFS Investment Grade Municipal Trust):

• Yield: 4.31% (NAV-based), 4.27% (share price).
• Risk: Lower leverage (35.56%) but narrower yield advantage.
• Discount: -7.85% (June 2025).

CMU's 5.91% yield outpaces both peers, while its discount offers comparable or better valuation upside. CXE and CXH's slightly tighter discounts are offset by CMU's superior income profile.

Managed Distribution Plan? No—That's a Good Thing

Unlike many CEFs that use managed distribution plans to prop up dividends (often via return of capital), CMU's distributions are performance-based. This transparency builds trust and avoids the pitfall of artificial payouts that drain investor capital. While CXE and CXH also lack managed plans, CMU's focus on high-yield bonds amplifies its income potential.

Action Items for Income Investors

1. Buy Before June 17: To capture the dividend, purchase shares before the ex-dividend date.
2. Hold for Tax Efficiency: Utilize taxable accounts to maximize federal exemption benefits.
3. Monitor the Discount: A narrowing discount could add 10%+ to returns if CMU's NAV converges with price.

Risks to Consider

• Leverage: CMU's 37.22% leverage amplifies volatility, especially in rising rate environments.
• Credit Quality: 1.27% of assets are in below-investment-grade bonds, posing default risk.
• Tax Changes: Federal or state tax reforms could impact municipal bond demand.

Final Verdict: A Rare Blend of Yield and Value

With a 5.91% tax-free yield, a 9.57% NAV discount, and a reliable income stream, CMU is a must-own for income investors. Its edge over peers like CXE and CXH in yield and valuation, coupled with the imminent June 17 ex-dividend window, makes this a rare opportunity to lock in high returns while positioning for potential NAV convergence.

Act now—before the ex-dividend date passes and the discount narrows.