Somehow I missed this but that doesn’t mean anything, I miss a lot of things. So if you’re up to speed on the government providing reinsurance for municipal bonds then skip this post.

If not, here is a little blurb I found on Fox Business:

In the fourth quarter of 2008, the municipal bond market collapsed along with the rest of the credit markets. Lately there has been a small revival. Still, depressed bond prices and wide spread credit concerns leave open big opportunities for investors in the new issue and secondary market, if you know where to look.

Long maturity tax exempts on average now yield 130% of comparable Treasury bonds and that’s before the exemption benefit. A portion of that differential may be attributed to what many have termed artificially low Treasury rates. Not that long ago, exempt yields averaged 75% of Treasuries. At no time since the 1930’s, has a full understanding of municipal credit risk been more valuable.

I come to that last conclusion by seeing treasuries continue to strengthen against the S&P as well as gold and silver. Worst hit by credit fears, as could be predicted, are small caps, who are obviously most likely to be hit by more stringent credit standards.

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iShares S&P National Municipal Bond Fund (MUB)
Market Vectors-Lehman Brothers AMT-Free Short Municipal Index ETF (SMB)
Market Vectors-Lehman Brothers AMT-Free Intermediate Continuous Municipal Index (ITM)
Market Vectors-Lehman Brothers AMT-Free Long Continuous Municipal Index (MLN)
PowerShares Insured National Municipal Bond Portfolio (PZA)
SPDR Lehman Municipal Bond ETF (TFI)

Remember that, the dividends may fluctuate, the share price will fluctuate, and the CEFs are not guaranteed by any governmental entity. Also, the dividends from some of these may be only partially tax- free. It is important to contact the company to verify the tax status of dividends before investing, and to contact your tax preparer regarding any tax issues.

The advantages of owning these types of closed end funds over owning individual municipal bonds directly are greater liquidity, no minimum investment, and greater diversification. In addition, the income from some of these may be exempt from state taxes. Ask your accountant about this and all other tax aspects of these CEFs before investing. A disadvantage is that the CEFs may sell above net asset value.

That means a stock can include closed end funds [CEFs], which most of the stocks on this list are, REITs, oil royalty income trusts, Canadian royalty trusts, etc. The dividends are tax free because the closed end funds on this list own municipal bonds in their portfolio.

Many income investors are looking for monthly dividend payments to support their income during retirement. Other pre-retirement investors want monthly dividend stocks for their IRAs for faster compounding.

This list is now up to 150 different stocks, CEFs, REITs, floating rate funds, and oil income funds [such as Canadian royalty trusts], all of which are traded on the New York Stock Exchange or the American Stock Exchange. I've added over twenty new securities since the year-end update, reposted the yields, kept the readers' recommendations of sorting by yield with the highest first, and identifying the Canadian companies [due to tax withholding issues].

Due to requests from readers, I have sorted the list by yield, from highest to lowest. In addition, I have identified the Canadian trusts due to the tax withholding issue which can significantly affect the yield, especially with regard to holding these Canadian Oil Income Trusts in retirement plans (they all trade in the U.S.). The list shows the name of the stock, the stock market symbol, the yield, and if the stock is Canadian.

1. Aberdeen Asia-Pacific Income Fund Inc. (FAX) 6.6%