Posted by Michelson Law Office

Five less expensive Tax-Free Dividends You Can Buy Now

Five less expensive Tax-Free Dividends You Can Buy Now

Many individuals who got wins last year are feeling shell-shocked, now that Uncle Sam has walked off with his cut.

Let us consider that it’s too late to recoup any of that lost cash. But some steps can still be taken to weaken Uncle Sam’s grip on your income stream before you find yourself in the same adverse condition next year. The government has provided an easy route to this

“Keep 100% of Your Gains For Life.”

It is referring to municipal bonds or bonds issued by states, cities, and counties to finance bridges and roads, just on any other project make available.

Why muni bonds? They are known to pay a steady dividend that is tax-free for several Americans, meaning you can have 100% of your gains for life. Second, your muni income will not lead you up into another tax bracket, another win that are focused on by a few individuals. 

The best way to purchase munis is via closed-end funds (CEFs) because CEFs permits us to buy these bonds at substantial discounts while enhancing the tax-free dividends they make available.

Let us consider the five cheap muni CEFs throwing with healthy income streams now.

Tax-Free Muni Dividend No. 1

As suggested by the name, the Nuveen MI Quality Municipal Income Fund (NUM) rely on bonds issued by the state of Michigan. NUM has an excellent track record and therefore considered a rare gem (it has been up 8%, on average, every year over the last ten years) and a 4.1% dividend stream. That is far above the 1.8% you can get from the average S&P 500 stock, and it does not even add the effect of NUM’s tax-free status!

Amazingly, it trades at a massive 13.6% discount to NAV now, though the deal is fading fast. With this reduction discount, investors are getting a significant profit (for moderately steady investments like munis), with 7.3% total returns for 2019 now.

More profit is available as the tax-weary hordes dive in over the coming few weeks. Get hold of NUM now, while it is still inexpensive.

Tax-Free Muni Dividend No. 2

We can invest beyond Michigan with the DTF Tax-Free Income Fund (DTF). Its multi-state approach suggests it holds bonds from across the country, having its biggest holding at 3% of its portfolio. And with a 12.3% discount, it is similarly discounted to NUM. The profit here is a smaller (3.2%) which is the price of this diversification. But DTF’s track record beyond makes up for this: it has made a return of over 80% in the last decade!

Although not all of those gains are in the form of tax-free dividends, DTF investors are solidly up over the long haul, and they are paid tax-free income as their principal grows.

Tax-Free Muni Dividend No. 3

If you desire significant income, you should consider the 4.7% dividend on the Delaware Investments National Municipal Income Fund (VFL).

Regardless of the name, VFL does not invest in Delaware (name of the company in charge of the fund); it’s a multi-state muni CEF with no above 2.3% of its assets in any muni bond. Its 11.5% discount has been gradually reducing, after a sudden widening in February.

All thanks to price gains, as the fund’s shares have risen to 8.4% for 2019—but there is much more available.

Why? Because VFL’s average discount to NAV over the last decade is just 8.5%, and with its income stream stronger than ever, there’s little reason for its current 11.5% discount to be available.

Tax-Free Muni Dividend No. 4

The Western Asset Intermediate Municipal Bond Fund (SBI) claims a 12.4% discount while giving you a consistent 3.8% dividend stream. But its history is what matters. This fund back dates to the early 1990 and its total return has been astounding over that time.

If you want a stream of income but you don’t want the issue of worrying about when to sell a fund or if it should be sold then SBI is the right choice. It has also been outpacing the benchmark iShares National Muni Bond ETF (MUB) since the ETF in 2007.

SBI is an option if you need a long-stream of income with concerns

Tax-Free Muni Dividend No. 5

The BlackRock MuniYield CA Quality Fund (MCA) has crumpled the market for a long time. Check the difference of its 10-year return with that of MUB.

Its 4.6% yield crushes the crummy 2.4% MUB pays out. Such outperformance deserves a premium, but MCA trades at a 12.0% discount to NAV, much below its 7% average discount over the last ten years. It indicates that you can get some upside from MCA if you make a purchase now, in addition to that good tax-free income stream.

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