Skip to Content
Fund Times

What to Make of Pimco Income's Return of Capital

A small portion of the fund's March dividend payments will be classified as return of capital rather than regular income.

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it. 

This article was updated on April 13 to incorporate additional information. A version was published on April 1, 2020.

Pimco filed a Section 19(a) notice with the SEC on March 30, 2020, notifying shareholders of Pimco Income PIMIX that a very small portion of their March 2020 dividend payment constituted a return of capital. That meant a 1.33% reclassification of the March payout as capital.

Once the norm rather than the exception it is today, Pimco Income looks to provide a predictable, steady level of monthly income by targeting a fixed payout and making sure the fund brings in enough interest income to easily meet it. (Most funds don't target fixed dividend payouts anymore.) Historically, Pimco has managed to do that without any trouble. But a sharp drop in yields among several bond market sectors over the past year, coupled with valuation-driven management decisions to trim exposure to risk assets going into 2020, meant a bit less income than usual flowing through the portfolio in March.

Pimco made the aforementioned 19(a) filing in recognition of that circumstance. In effect, though, it was a point-in-time accounting observation, reflecting a very slight portfolio-income to dividend-payment mismatch for a single month. So slight, in fact, that 1.33% of a roughly $0.05 per-share monthly dividend is essentially a rounding error.

Were the portfolio to produce less income than necessary to cover its dividend payouts over the course of the entire 2020 tax year as a whole, that would potentially trigger a reclassification of already-distributed income to a return of capital for tax-reporting purposes. This is the first time in its history that the fund has even had to make a 19(a) filing to reflect a monthly accounting mismatch, though, meaning it has always generated plenty of income to cover its payouts for both year-end tax and month-by-month accounting purposes.

As such, as long as the underlying portfolio generates at least as much income as the fund pays out over the 2020 tax year as a whole, it's extremely unlikely Pimco Income would have to reclassify any of its dividend payouts as a return of capital. In fact, Pimco's caution in making sure to outearn the fund's full-year dividends, and thus avoid returning capital to shareholders over the entirety of its existence, has been notable.

All in all, there's very little about this event with which to be concerned. 

Eric Jacobson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.