Voya IDE's Dividend Sustainability Under Strain: A Cautionary Tale for Income Investors

The Voya Infrastructure, Industrials and Materials Fund (IDE) has long been a darling of income-seeking investors, offering a steady $0.10 monthly dividend that translates to a 10% annualized distribution rate on net asset value (NAV). But beneath the surface, troubling signs are emerging. A deep dive into the fund's financials reveals a precarious reliance on return of capital (ROC) to sustain its payouts, while its NAV faces headwinds from underperformance and structural challenges. For investors, the question is clear: Can IDE's dividend machine keep running, or is it a ticking time bomb?

The Dividend Dilemma: Income vs. Erosion

IDE's managed distribution policy promises consistency, but its execution hinges on a precarious mix of sources. Recent filings show that over the 12 months ending February 2025, 46% of distributions came from return of capital—a practice that chips away at shareholders' principal. Even in the first half of 2025, ROC accounted for 45% of cumulative payouts, with net investment income contributing just 16% (see chart below). This heavy reliance on ROC raises red flags, as it signals that the fund's underlying investments are not generating sufficient income or capital gains to cover distributions.

NAV Struggles and Discount Dynamics

IDE's NAV has stagnated in recent years, growing only 9.92% over the past 12 months compared to the MSCI ACWI Index's 15.06%. Meanwhile, its shares trade at a persistent discount to NAV—averaging -11% over the past year and reaching as low as -15% in late 2024. This discount isn't just a temporary blip; it reflects investor skepticism about the fund's ability to deliver on its total-return mandate.

The discount creates a vicious cycle: as distributions rely more on ROC, the NAV erodes further, which could widen the discount and pressure the share price. For income investors, this means two risks: the dividend may shrink over time, and the principal value could decline, leaving them with diminished assets even if payouts persist.

Underperformance and Strategic Missteps

IDE's underperformance relative to its benchmark stems from flawed execution in its core strategy. The fund's focus on infrastructure, industrials, and materials sectors has collided with sector-specific headwinds, such as supply-chain disruptions, inflation pressures, and regulatory uncertainty. Compounding these issues is its covered-call strategy, which contributed to a -1.8% drag on returns in 2024 as equity markets rallied. This strategy, meant to boost income, backfired when rising markets rendered sold call options costly to hedge.

The portfolio's high turnover (76% annually) also suggests a reactive approach to changing conditions, generating tax-inefficient short-term gains and eating into returns via trading costs. With an expense ratio of 1.22%, the fund's costs are manageable but not negligible, especially when paired with a strategy that struggles to outperform.

Sector and Geographic Risks

IDE's top holdings include global giants like Cisco, Siemens, and Verizon, but its geographic allocation—51% U.S., 8% Japan, and 4% France—leaves it exposed to regional economic divergences. While the U.S. economy has shown resilience, European stagnation and Japan's tepid recovery weigh on returns. Emerging markets, which account for 22.8% of the portfolio, face headwinds from U.S. dollar strength and trade tensions, as noted in the fund's latest outlook.

The Bottom Line for Investors

IDE's dividend remains enticing, but its sustainability is far from certain. The 45%+ ROC component in recent distributions is unsustainable without meaningful NAV growth, and the fund's underperformance relative to benchmarks and its own historical returns suggests a lack of competitive edge.

Investment Takeaway:
- Hold with Caution: Investors already in IDE should monitor ROC levels closely. If they rise further, it may signal an impending dividend cut.
- Consider Alternatives: Look for infrastructure-focused funds with lower expense ratios, less reliance on ROC, and better risk-adjusted returns, such as the iShares Global Infrastructure ETF (IFRA) or the FlexShares Morningstar Global Upstream Natural Resources Index Fund (NRGS).
- Avoid New Investments: At current valuations and structural challenges, IDE's risks outweigh its income appeal.

In a world where steady dividends are hard to find, IDE's allure is understandable. But income investors must ask themselves: Is a 10% yield worth the risk of losing principal through return of capital? The answer, for now, leans toward caution.

This analysis is based on publicly available data as of July 14, 2025. Past performance does not guarantee future results.