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6.5% Tax-Advantaged Yield, Monthly Pay, Global Exposure: ETO


  • International securities are currently priced well.
  • Exposure to markets outside the U.S. can be a valuable source of diversification.
  • ETO provides a reliable distribution from a solid portfolio with geographic diversification.
  • ETO trades at a 7% discount with the 6.5% yield paid on a monthly basis.
  • Looking for a portfolio of ideas like this one? Members of High Dividend Opportunities get exclusive access to our model portfolio. Learn More »
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Co-produced with PendragonY

International Equities Are Very Attractive Today

The last 10 years have been great for U.S. equities. For over a decade now, the S&P 500 index has shown significantly better performance than the rest of the world. The U.S. dollar, long a safe haven, has

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This article was written by

Rida Morwa profile picture

Rida Morwa is a former investment and commercial Banker, with over 35 years of experience. He has been advising individual and institutional clients on high-yield investment strategies since 1991.

Rida Morwa leads the investing group High Dividend Opportunities where he teams up with some of Seeking Alpha's top income investing analysts. The service focuses on sustainable income through a variety of high yield investments with a targeted safe +9% yield. Features include: model portfolio with buy/sell alerts, preferred and baby bond portfolios for more conservative investors, vibrant and active chat with access to the service’s leaders, dividend and portfolio trackers, and regular market updates. The service philosophy focuses on community, education, and the belief that nobody should invest alone. Lean More.

Analyst’s Disclosure: I am/we are long ETO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Treading Softly, Beyond Saving, PendragonY, and Preferred Stock Trader all are supporting contributors for High Dividend Opportunities. Any recommendation posted in this article is not indefinite. We closely monitor all of our positions. We issue Buy and Sell alerts on our recommendations, which are exclusive to our members.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (59)

Seeking Alpha shows that ETO has raised the dividend to .1792 from the previous .1425 or a 5% increase..
sower profile picture
I noticed ETO has a dividend payout listed at 420+%..... is that concerning?
PendragonY profile picture

Not sure where you got those numbers, but the fund itself reports these:
Average annual total return at NAV for the 5-year period ended on January 31, 2021 - 12.61%
Annualized current distribution rate expressed as a percentage of NAV as of January 31, 2021 - 6.48%
Cumulative total return at NAV for the fiscal year through January 31, 2021 - 8.45%
Cumulative fiscal year to date distribution rate as a percentage of NAV as of January 31, 2021 - 2.16%

That shows me a well-covered distribution as total return at NAV is growing faster than the yield on NAV.
Mili21 profile picture
When in doubt with such numbers, it's always good to check few different (CEFConnect, CEFData, M*, etc.) sites or the best the fund management company site.
If not SA or such articles are always there to answer your questions... -:)
Nonetheless PY is very prompt in responses or clarifying doubts...
Thanks PY.... -:)
PendragonY profile picture

You are welcome. I think as an author if people take the time to read and comment on my article and are unsure of something, it is part of my job to clear it up.
What changes should we anticipate now that EV CEF have been acquired by MS?
PendragonY profile picture

The latest news I have is that this will not result in any material changes to the various funds.
ETO is on my list.
Good data and COMMENTARY.
ETG shows return of capital because they write covered calls and that can be distributed as ROC and be taxed at a lower rate. It is an advantage and a fund worth owning. Although everything is pricey at today's levels.
elliot_mllr profile picture
The Biden tax plan has capital gains and dividend income taxed at ordinary income rates for investors with incomes of $00,000 or more, thereby eliminating the tax advantage for those investors..
Elliot Miller
PendragonY profile picture

It remains to be seen what exactly will become law.
houtex profile picture
You missed a number or are being very cheeky. Probably the former. What’s the cutoff?
elliot_mllr profile picture
@houtex :
Originally it was $400,000 but now I hear it's down to $200,000. As the announcer referenced Lamont Cranston, " Who knows what evil lurks in the heart of man"?
Elliot Miller
Phil in OKC profile picture
Those comments from Fidelity are similar to what my portfolio manager recommended to me with my company 401K. At the time, I did not believe in investing internationally, but I now see the wisdom. I'll be starting a position in ETO at the first pullback. Should work nicely along with AWP to increase my foreign investment during this worldwide recovery from the balck swan..
Mili21 profile picture
Thanks for an article on ETO.
Any comments on it's leverage of ~20% and probability of distribution reduction?
PendragonY profile picture

We think the NAV is going up, so leverage will help. Also, we like where it is now with distribution coverage and think it will eventually increase the distribution again.
Eileen Dover profile picture
ETO looks really good, though it's right at its 52 week high so I will consider jumping in when it drops some.
Rida Morwa profile picture
@Eileen Dover The price is at a 52-week high, but the NAV is up even further. So unless we see a significant pullback in the market, the price is more likely to go up to catch NAV than down.
Eileen Dover profile picture
@Rida Morwa Will keep watching it. It's up almost 2.5% today right after your article ran !! You have the power to move holdings !
Phil in OKC profile picture
@Eileen Dover No doubt Eileen, only a 54K share 90-day average. That number almost tripled today. These things have a history of returning to earth after a Rida send off! he he I just bait my trotline and set it a bit deeper, and wit for a lunker to come swimming along. The market is fickle and any little anomaly can set it in a panic
Thank you for the article. Any foreign tax withholding from disbursements?
PendragonY profile picture

From what I can see here it looks like the fund pays the taxes on foreign holdings.
kitkimes profile picture
Thanks, I'll keep ETO on my radar. I like monthly dividends but only have a few since most are REITs and I'm trying to stay balanced. I also like that it is about 60/40 % split between US and rest of world products. I like international exposure without it being 100%.
Rida Morwa profile picture
@kitkimes Thanks for reading and commenting!
littlecubbie2019 profile picture
I can’t believe that it still trades at a discount. It has risen so much especially from my experiences with cefs. I’d like them to increase the distribution. My daughter owns etg and that’s been really good too.
Rida Morwa profile picture
@littlecubbie2019 Since June last year, ETO has had the "problem" that their NAV is climbing faster than the price. Even though the price has had very good returns, it has failed to keep pace with NAV.
I have owned ETO for awhile. After reading your article, the dividend statement didn't make sense to me. I checked the SA site and it is as you say, they raised in 2021, but I have owned it for a few years and don't see what it is reflecting. ETO slashed the dividend last May to .1425 from .18 and it's been the same since. The dividends I have received reflect that.
PendragonY profile picture

I am not sure where we confused you. But we never said the distribution had been increased, in fact, we mention the distribution cut and point out that that was a good move by management as it kept the payout well supported. And cutting the distribution from 18 cents a month to 14.25 was a fairly modest cut as well as prudent.

We do think that a distribution increase will be coming as the fund can now support a bigger payment based on the increase in NAV and the very small amounts of ROC is a few of the distributions last year.
@PendragonY ok....this line is what I read: "The dividend was raised back up in 2021 slightly lower than where it was pre-COVID,"
PendragonY profile picture

Oops, looks like we relied on what SA showed (it is having some issues with how it is parsing data on dividends from its data provider). I'll get that corrected.
Switched out of ETO and into ETG when ETO cut its dividend about a year ago. Like the fact that ETG's dividend payout has held steady going back to around 2009.
PendragonY profile picture

ETG has about the same total return on NAV as ETO over the last 5 years and ETO had to cut the distribution to keep it within a well-supported range. ETG also has a lot of its distributions designated as ROC. In the past with other Eaton Vance funds that tends to be a sign that the distribution will be cut. ETO mostly didn't have ROC once it cut its distribution and none this year. ETG has ROC this year.
@PendragonY Good point, thanks.
CincinnatiRick profile picture
@PendragonY Like the tax characterization of the distributions...important consideration and important to know.
The current payout ratio is over 400%. I'm not sure if that is coming from capital gains or leverage. What does that imply in terms of the funds ability to continue to payout the current dividend?
Rida Morwa profile picture
@steve1189 CEFs are required to payout both income and capital gains. So the best way to determine if it is sustainable is to watch NAV. Currently, NAV is higher than it has been in over a decade and continues to climb fast, so if anything ETO might consider increasing their regular dividend back up or paying out a hefty special dividend at the end of the year.
PendragonY profile picture

Not sure where you are getting that "payout ratio" or what it is actually a ratio of, but look at NAV if you want to see if the fund can support the distrobution. Even during 2020, NAV is up. The distribution is well supported.
Anthony Ruben profile picture
You had my interest- geographically diversified, high yield, etc.- until I saw that the fund is 57% US, with the five largest holdings all big US names. A fee of 1.2% for that?
PendragonY profile picture
@Anthony Ruben

The US is one of the biggest economies and is a safe place to invest. And Google, Amazon, Microsoft, and Apple, while based in the US, do have a large international presence as well.
@PendragonY I think he expected more international exposure. I made a small purchase in BGY to get a more pure international exposure with no leverage. BGY is real defensive with 25 % pharma and 25% staples, yet it still has a few USA stocks. I haven't seen a pure international exposure CEF.
SleepyInSeattle profile picture
@jasonjones BGY has been a falling knife, going from $17.75 in 2009 to $6.15 at current price. ETO has a better history and is more solid.
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