Seven High-YieldingTax Exempt Dividend Stocks

There are a group of investment vehicles which invest in municipal bonds that generate tax free income. I am referring to them as stocks in this article although they are structured as closed end funds [CEFs], which is a slightly different animal. The tax-free CEFs have several advantages over buying individual municipal bonds directly:

1. Muni CEF's have better liquidity, with share prices quoted daily.

2. The CEF's provide much greater diversification, for the amount of money invested.

3. There is no minimum investment with a CEF, whereas, you will be lucky to find a brokerage firm that will sell you one $5,000 bond.

4. Most of the CEF's generate monthly dividends, versus a muni bond which only pays semi-annually.

5. It is easier to reinvest your income with CEF's.

Some things you should be aware of before investing in these securities.

1. They may be subject to state income tax.

2. There may be an alternative minimum tax consequence. (Check with your accountant before investing.)

3. For most of these, there is no yield to maturity.

4. The yield will fluctuate.

5. The price will fluctuate.

Here are a few of the highest yielding tax exempt stocks which came from the list of over 200 tax free stocks at WallStreetNewsNetwork.com:

PIMCO Municipal Income Fund (PMF) is one of the highest yielding tax exempt CEF's, paying a yield of 6.3%. This stock has paid the same monthly dividend, $0.08.1, since April 2002.

One of the highest yielding tax exempt stocks which does have a maturity is the BlackRock Municipal 2018 Term Trust (BPK), which has a yield of 6.0%. Its monthly dividend has been $0.07.6 since July 2005.

One of the two highest yielding Florida municipal bond CEF's is the BlackRock Florida Municipal Bond Trust (BIE), which yields 6.2%. It has been paying $0.07.8 per month since July 2003.

If you are looking for California tax-free income, you might want to look at the Nuveen California Dividend Advantage Municipal Fund 3 (NZH), which yields 5.6%. The fund has been paying monthly dividends since November 2001.

Nuveen also has a Texas CEF called Nuveen Texas Quality Income Municipal Fund (NTX), that yields 5.9%. Their dividends have been paid since October of 2001.

There are also New Jersey muni CEF's. BlackRock New Jersey Municipal Bond Trust (BLJ) pays 5.9%. It has been paying dividends since June 2002.

A New York CEF that pays about 5.9% is the PIMCO New York Municipal Income Fund II (PNI). It has been paying monthly dividends since August 2002.

For a list of over 200 tax exempt stocks that you can sort, change, and download, go to WallStreetNewsNetwork.com.

Disclosure: The author does not own any of the above.

Comments

[Indexor:]

Be careful with CEFs. In a credit-problem environment like we are currently experiencing, it is very easy to have liquidity dry up. Go back and look at charts for these issues from last year. You'll see a couple of them fall off a cliff with declines in June, August and November. And if you want to buy more than 100 shares, say 5,000, 10,000 or more, you may not be able to get out in one day without taking a real beating. You can't block trade a CEF that only has 100 shares at the Bid. ETFs and even mutual funds (Ugh!) offer much more liquidity and less questionable trading agendas. It will only take one bad experience with CEFs for you and your client's to leave that market forever.

2008 Mar 18 09:47 AM

[notsosmart:]

thanx for the above comment

2008 Mar 18 11:15 AM

[grinninbrit71:]

author has approached an interesting investing group, muni cef's, but really done a pretty poor job with his recommendations. Most of what he is recommending is trading between moderate premium to NAV and outrageous premium to NAV, all to yield a few tenths of a percent more than CEF Muni's currently trading at decent discounts at NAV. Rather than tossing out my recommendations you need to due your due diligence at www.etfconnect.com go to fund sorter, closed-end fund, discount. Not necessarily saying to just pick the largest discount to NAV, as there are some that have far too low of a yield... however there are plenty with 10% discounts and very good yields.

2008 Mar 22 11:57 PM

[proseadvocate:]

Both comments are interesting regarding block trades and market premiums. It tends to rationalize buying the individual issues if you want to avoid both potentials. Then you might actually have to do some homework. When the author worries about investing with less than $5,ooo it is obvious that he needs to learn more before investing anything. Try CD's. It has always been a zero sum game.

2008 Mar 25 02:18 AM

[Sauciel:]

I'm rather new to CEF's but interested in income products in general. Is there a way to assess the quality of a CEF like, say, PMF? Unlike stocks, there seems to be no analysts' recommendations for these that I can find. Thanks

2008 Apr 12 04:34 PM