An income stock yielding around 10.4% is an eye-catching find, even among the FTSE 250‘s many dividend payers.

The index might be better known for smaller growth businesses, but there are plenty of dividend opportunities too. And Henderson Far East Income (LSE:HFEL) currently offers this whopping double-digit yield to income investors today.

But what does this business actually do? And is the payout too good to be true?

Where does the income originate?

Henderson is an investment trust, pooling shareholders’ money to invest in Asian dividend-paying companies, using that income to pay its own dividend. However, dividends alone aren’t the whole story. The manager also sells call options over some of its holdings. And this is where things can get a little complicated.

Buying a call option allows an investor to buy shares in a business at a specified price (called the strike price) during a specific time window. By selling call options, Henderson receives cash up front from other investors speculating that a share price will rise above the strike price before the option expires.

This strategy allows Henderson to squeeze extra income from its investment portfolio, earning a higher investment yield without being forced to invest solely in higher-risk, high-yield Asian income stocks.

The group also uses other complex trading strategies as well. But overall, is the trust generating enough cash flow to fund its generous yield?

Is the dividend covered?

Looking at Henderson’s latest 2026 fiscal year results (ending in August), the group’s revenue per share landed at 28.16p. By comparison, a total of 25.1p was paid out to shareholders as dividends, putting the coverage ratio at roughly 1.1 times.

That level of coverage is a little tight, but it nonetheless signals that today’s gargantuan yield is indeed sustainable… for now.

Digging deeper into the numbers revealed that due to significant volatility within the Korean markets, income from selling options shot up by 188.8% year on year. That’s some phenomenal growth.

However, this helpful bout of volatility isn’t expected to last, with management warning it expects this income growth to moderate. And when looking at the core dividend-generating portfolio, income from investments only grew by around 4.5%.

On the plus side, the dividend growth outlook in Asia’s looking promising. Ongoing corporate reforms in South Korea, China, and Singapore are driving new incentives for businesses to pay more in dividends. And stronger recurring payouts reduce Henderson’s reliance on option trading to drive earnings growth in the future.

Where’s the risk?

As previously mentioned, selling call options is not risk-free. These ultimately cap the return on investment Henderson can earn while providing next-to-no downside protection if share prices suddenly start to fall.

Historically, leadership has proven remarkably adept at navigating these risks given that dividends have been hiked for 19 years in a row. However, at the same time, with the bulk of cash flow being distributed to shareholders, the share price has barely moved over the last two decades.

Overall, for income investors seeking a chunky yield and some Asian diversification, Henderson could be worth mulling. But for those looking for a combination of dividends and share price growth, there are far better options to consider. Such as…

What income stock do we like better than Henderson Far East Income right now?

One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Zaven Boyrazian does not hold any positions in the companies mentioned.