Tax free stocks are technically closed end funds or CEFs that own municipal bonds which pay tax free interest. There are risks of course like any investment, such as a potential (or in my opinion certain) rise in interest rates, which would cause the price of the shares to drop. Plus many CEFs use leverage to obtain higher yields.
But there are many advantages besides that tax free income feature. Almost all of these CEFs pay dividends monthly, whereas, if you by an individual bond, the interest is paid semi-annually. CEFs have no minimum investment, whereas bonds are sold in $5,000 denominations and many brokers have minimum purchases ranging from $15,000 to $25,000. You also have better liquidity with CEFs as prices are quoted real time and quotes are immediately available on the Internet. CEFs provide diversification through a group of bonds in the portfolio.
Municipal bonds pay interest that is exempt from Federal taxes and may be exempt from state taxes if issued in the state you live in or issued by one of the US territories, such as Puerto Rico, the Virgin Islands, or Guam. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments.WallStreetNewsNetwork.com just recently updated over 150 of these tax-free income CEFs, and more than 100 providing yields in excess of 5%.
One example, appropriate for New York residents, is Nuveen New York Investment Quality Municipal Fund Inc. (NQN) which seeks to provide current income exempt from regular Federal and New York State and City income tax, and pays a fairly high yield of 6.2%. However, it does use leverage, to the tune of 38%, to achieve its high yield. The fund trades at about a 3% discount to net asset value, also referred to NAV, at the time of writing. The management fee of 0.68% is below the overall average of all tax free CEFs. It has been paying dividends since 1990. Slightly less than 10% of the bonds in the portfolio are subject to the alternative minimum tax, also referred to as AMT.
California residents might want to take a look at the Nuveen California Municipal Value Fund Inc. (NCA), which doesn't use any leverage to achieve its 5.0% yield, free of Federal and state income taxes. It currently trades at an 8.3% discount to NAV, and carries a reasonable 0.57% management fee. The CEF, which has been around since 1987, has about 8.5% of its portfolio in AMT bonds.
For a CEF that is diversified nationwide, there is the Federated Premier Intermediate Municipal Income Fund (FPT), which seeks to provide current income exempt from federal income tax, including AMT. The fund yields 5.6% and has no AMT bonds in the portfolio. It is trading at a 1.9% discount to net asset value. Leverage is quite high at 40% but the management fee is a reasonable 0.46%. Income has been paid since 2002.
Another option is the Western Asset Municipal Partners Fund Inc. (MNP), yielding 5.2%, and trading at a 5.6% discount to NAV. Leverage is at 37%, and the CEF carries a management fee of 0.82%, slightly above the average. The CEF has been around since 1992.
The issues to watch out for with tax free CEFs:
* high leverage
* high management fees
* trading at a premium to NAV
* bonds in the portfolio that may be subject to the Alternative Minimum Tax
* quality of bonds in the portfolio
For a list of tax free income closed end funds, which includes yields, discounts and premiums, leverage, management fees, date founded, and other information, go to WallStreetNewsNetwork.com.
Disclosure: Author did not own any of the above at the time the article was written.
By Stockerblog.com
Showing posts with label tax free. Show all posts
Showing posts with label tax free. Show all posts
Thursday, December 22, 2011
Saturday, October 1, 2011
Stocks that Pay Tax Free Dividends
Here are your choices for income investments:
1. Savings accounts that pay less than half a percent
2. Certificates of deposits that barely pay one percent
3. Regular income stocks that pay dividends that are fully taxable
4. Corporate bonds that pay fully taxable income
5. Treasury bonds and notes that are Federally taxable
6. Municipal bonds and muni bond closed-end funds that pay tax free interest with over 120 tax-free CEFs paying in excess of 6%
Uncertainty in the stock market has been continuing for months. In addition, there is the significant possibility of tax increases. Investors are turning to tax-free closed end funds or CEFs that invest in municipal bonds that pay interest that is exempt from Federal taxes and can be exempt from state taxes if issued in the state you live in. Although these are occasionally referred to as tax-free stocks, they are technically closed-end funds. WallStreetNewsNetwork.com has turned up over 150 of these tax-free CEFs.
Municipal bonds are great for high tax bracket taxpayers, as they provide income that is tax free from Federal income taxes, and if the bond is issued from the state in which the taxpayer resides or from one of the territories of the US such as Puerto Rico, Guam, or the Virgin Islands, then the income is also exempt from state taxes. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments.
Some of these CEFs have yields of 5% or more, such as the Invesco Municipal Income Opportunities Trust II (OIB), which yields 6.6%, sells at a discount to net asset value, uses almost no leverage, and has a management fee of 0.58%. The CEF has been paying dividends since 1989. Nuveen New York Performance Plus Municipal Fund (NNP) has a goal of providing current income exempt from regular federal and New York State and City income tax. The fund yields 6.0%, trades at a 6.5% discount to NAV, has leverage of 35.58%, and has a management fee of 0.69%.
For California residents, you can consider Neuberger Berman California Intermediate Municipal Fund Inc. (NBW), which is exempt from federal and California income taxes. It sports a yield of 5.5%, and trades at a very slight discount to NAV. However, it utilizes very high leverage at 41.1% and a management fee of 0.67%.
The Municipal Bond Closed End Funds have numerous advantages. There is no minimum investment. You could technically buy one share. Dividends are paid monthly, so you receive you capital back faster, and you generate quicker compounding of your income. The CEFs are very liquid and traded on major exchanges. The CEFs trade with narrow bid and asked spreads compared to municipal bonds. You can sell off small portions of your CEF holdings if you need funds.
Issues to watch out for include high leverage, high management fees, and CEF's trading at a premium. Also be careful about income that may be subject to Alternative Minimum Tax.
WallStreetNewsNetwork.com just updated its list of tax free income closed end funds, which includes over 175 CEFs, including yields, discounts and premiums, leverage, management fees, date founded, and other information.
Disclosure: Author did not own any of the above at the time the article was written.
By Stockerblog.com
1. Savings accounts that pay less than half a percent
2. Certificates of deposits that barely pay one percent
3. Regular income stocks that pay dividends that are fully taxable
4. Corporate bonds that pay fully taxable income
5. Treasury bonds and notes that are Federally taxable
6. Municipal bonds and muni bond closed-end funds that pay tax free interest with over 120 tax-free CEFs paying in excess of 6%
Uncertainty in the stock market has been continuing for months. In addition, there is the significant possibility of tax increases. Investors are turning to tax-free closed end funds or CEFs that invest in municipal bonds that pay interest that is exempt from Federal taxes and can be exempt from state taxes if issued in the state you live in. Although these are occasionally referred to as tax-free stocks, they are technically closed-end funds. WallStreetNewsNetwork.com has turned up over 150 of these tax-free CEFs.
Municipal bonds are great for high tax bracket taxpayers, as they provide income that is tax free from Federal income taxes, and if the bond is issued from the state in which the taxpayer resides or from one of the territories of the US such as Puerto Rico, Guam, or the Virgin Islands, then the income is also exempt from state taxes. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments.
Some of these CEFs have yields of 5% or more, such as the Invesco Municipal Income Opportunities Trust II (OIB), which yields 6.6%, sells at a discount to net asset value, uses almost no leverage, and has a management fee of 0.58%. The CEF has been paying dividends since 1989. Nuveen New York Performance Plus Municipal Fund (NNP) has a goal of providing current income exempt from regular federal and New York State and City income tax. The fund yields 6.0%, trades at a 6.5% discount to NAV, has leverage of 35.58%, and has a management fee of 0.69%.
For California residents, you can consider Neuberger Berman California Intermediate Municipal Fund Inc. (NBW), which is exempt from federal and California income taxes. It sports a yield of 5.5%, and trades at a very slight discount to NAV. However, it utilizes very high leverage at 41.1% and a management fee of 0.67%.
The Municipal Bond Closed End Funds have numerous advantages. There is no minimum investment. You could technically buy one share. Dividends are paid monthly, so you receive you capital back faster, and you generate quicker compounding of your income. The CEFs are very liquid and traded on major exchanges. The CEFs trade with narrow bid and asked spreads compared to municipal bonds. You can sell off small portions of your CEF holdings if you need funds.
Issues to watch out for include high leverage, high management fees, and CEF's trading at a premium. Also be careful about income that may be subject to Alternative Minimum Tax.
WallStreetNewsNetwork.com just updated its list of tax free income closed end funds, which includes over 175 CEFs, including yields, discounts and premiums, leverage, management fees, date founded, and other information.
Disclosure: Author did not own any of the above at the time the article was written.
By Stockerblog.com
Tuesday, February 22, 2011
Which Are Better? Muni Bonds or Tax Free CEFs
With the stock market volatility and uncertainty, and the possibility of future tax increases, many investors are turning to tax free bonds, also known as municipal bonds and munis, or they are choosing the alternative tax free income closed end funds, of which there are over 250 available according to WallStreetNewsNetwork.com. When deciding which is the better way to go, investors should know the advantages and disadvantages of muni bonds versus closed end funds, generally referred to as CEFs.
Municipal bonds have always been popular with high income taxpayers, since the bonds provide income that is tax free from Federal income taxes. If the bond is issued from the state where the taxpayer lives or from one of the territories of the US such as Puerto Rico, Guam, or the Virgin Islands, then the income is also exempt from state taxes. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, and water and power departments.
One of the advantages of munis is that you can pick and choose what governmental agency you want to loan money to. Investors may be better off sticking with those that fund projects with guaranteed income streams such as bridge tolls.
In addition, bonds have a maturity date. Why is that important? It means that no matter how high interest rates go, and no matter how low the bonds drop in value, at maturity, the bonds are paid off at par.
There are some drawbacks though. Bonds carry a high minimum investment. Although munis are issued in $5,000 denominations, a round lot is generally considered by many brokerage firms to be $100,000.
There is less diversification available to investors. Because of the higher minimum, investors can't own as many diverse bonds as they could with a CEF.
Also, interest payments are made only twice a year, and there is no professional management or monitoring of the bonds.
One last disadvantage is illiquidity. Munis are not traded on an exchange, and estimated prices given on brokerage statements may be way off from what brokers will actually offer you if you want to sell.
So what about tax free closed end funds? First, there is no minimum investment. If your brokerage firm would allow it, you could conceivably buy one share of a CEF.
The CEFs provide a monthly income, and with that monthly income, the investor's capital is returned faster, which means you can do faster compounding of your income. Also, since CEFs are traded on major exchanges, they are very liquid.
Taking a look at the negatives of muni CEFs, you do pay a management fee and other administrative fees, plus some CEFs use leverage, which increases the risks to the investor. Some CEFs may be trading at a premium to net asset value, which should be avoided.
With the exception of a few target funds, there is no maturity date, so if rates go up and continue to rise during your lifetime, you may never get your principal back.
As you can see, there are advantages and disadvantages to both municipal bonds and CEFs. You have to be the one to decide which way to go. If you want a list of municipal bond closed end funds, which can be downloaded, sorted, and updated, go to WallStreetNewsNetwork.com.
By Stockerblog.com
Municipal bonds have always been popular with high income taxpayers, since the bonds provide income that is tax free from Federal income taxes. If the bond is issued from the state where the taxpayer lives or from one of the territories of the US such as Puerto Rico, Guam, or the Virgin Islands, then the income is also exempt from state taxes. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, and water and power departments.
One of the advantages of munis is that you can pick and choose what governmental agency you want to loan money to. Investors may be better off sticking with those that fund projects with guaranteed income streams such as bridge tolls.
In addition, bonds have a maturity date. Why is that important? It means that no matter how high interest rates go, and no matter how low the bonds drop in value, at maturity, the bonds are paid off at par.
There are some drawbacks though. Bonds carry a high minimum investment. Although munis are issued in $5,000 denominations, a round lot is generally considered by many brokerage firms to be $100,000.
There is less diversification available to investors. Because of the higher minimum, investors can't own as many diverse bonds as they could with a CEF.
Also, interest payments are made only twice a year, and there is no professional management or monitoring of the bonds.
One last disadvantage is illiquidity. Munis are not traded on an exchange, and estimated prices given on brokerage statements may be way off from what brokers will actually offer you if you want to sell.
So what about tax free closed end funds? First, there is no minimum investment. If your brokerage firm would allow it, you could conceivably buy one share of a CEF.
The CEFs provide a monthly income, and with that monthly income, the investor's capital is returned faster, which means you can do faster compounding of your income. Also, since CEFs are traded on major exchanges, they are very liquid.
Taking a look at the negatives of muni CEFs, you do pay a management fee and other administrative fees, plus some CEFs use leverage, which increases the risks to the investor. Some CEFs may be trading at a premium to net asset value, which should be avoided.
With the exception of a few target funds, there is no maturity date, so if rates go up and continue to rise during your lifetime, you may never get your principal back.
As you can see, there are advantages and disadvantages to both municipal bonds and CEFs. You have to be the one to decide which way to go. If you want a list of municipal bond closed end funds, which can be downloaded, sorted, and updated, go to WallStreetNewsNetwork.com.
By Stockerblog.com
Thursday, October 21, 2010
The Advantages of Tax Free CEFs Yielding Over 5%
With so much uncertainty in the stock market, and with the possibility of tax increases on the horizon, investors have been allocating funds into tax free bonds (municipal bonds), directly and through tax free income closed end funds. Tax free closed end funds or CEFs have several advantages over investing in municipal bonds directly.
Many of these CEFs have yields of 5% or more, such as the Blackrock Apex Municipal Fund Inc. (APX), which sells at a discount to net asset value, uses almost no leverage, and yields 5.7%. The Nuveen New York Dividend Advantage Municipal Fund 2 (NXK) has a yield of 5.8%, is currently trading at a discount to NAV, and has about 26.5% leverage, much lower than the average leverage of 34.7% for all the CEFs. The Nuveen Investment Quality Municipal Fund Inc. (NQM) yields 6.6%, utilizes about 29% leverage, and trades at a slight discount. WallStreetNewsNetwork.com just updated its list of tax free income closed end funds, which describes almost 200 ETFs,, including yields, discounts/premiums, leverage, management fees, date founded, and other information.
High income taxpayers love municipal bonds, as they provide income that is tax free from Federal income taxes, and if the bond is issued from the state in which the taxpayer resides or from one of the territories of the US such as Puerto Rico, then the income is also exempt from state taxes. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments. Here are the advantages and disadvantages of munis and muni CEFs.
Municipal Bonds
Advantages:
1. You can pick and choose what governmental agency you want to loan money to. Maybe you want to stick with the bonds from the cities and counties near you that you are familiar with.
2. Bonds have a maturity date. This means that no matter how high interest rates go, and no matter how low the bonds drop in value, at maturity, the bonds are paid off at par.
3. What your bond is worth is what your bond is worth; in other words, the trading price of CEFs may be far higher or lower than the net asset value of the fund.
Disadvantages:
1. Higher minimum investment. Although munis are issued in $5,000 denominations, a round lot is generally considered by many firms to be $100,000.
2. Less diversification. Because of the higher minimum, investors can't own as many diverse bonds as they could with a CEF.
3. Interest payments only twice a year.
4. No professional management or monitoring.
5. Illiquidity. Munis are not traded on an exchange, and estimated prices given on brokerage statements can be way off from what brokers will actually offer you if you want to sell. This actually happened to me; I received an offer of five points less than what the statement showed a couple days before, with no change in interest rates over those couple days.
Municipal Bond Closed End Funds
Advantages:
1. No minimum investment. You could technically buy one share.
2. Monthly income.
3. With the monthly income, you receive you capital back faster, and you can do quicker compounding of your income.
4. Very liquid; traded on major exchanges.
5. Narrow bid and asked spreads compared to municipal bonds.
6. Can sell off small portions if funds are needed. In other words, if you had $10,000 invested and needed to cash in $1,000 worth, you could do it with a CEF but not with municipal bonds.
Disadvantages:
1. You pay a management fee and other administrative fees.
2. Some CEFs use leverage. You should beware that this increases the risks to the investor.
3. Some CEFs may be trading at a premium to net asset value. You want to look for those trading at a discount.
4. No maturity date (other than a few target funds). If rates go up and continue to rise during your lifetime, you may never get your principal back.
As you can see, there are benefits to both municipal bonds and municipal bond closed end funds. Just make sure that you are familiar with the risks and costs of each.
Disclosure: Author does not own any of the above at the time the article was written.
By Stockerblog.com
Many of these CEFs have yields of 5% or more, such as the Blackrock Apex Municipal Fund Inc. (APX), which sells at a discount to net asset value, uses almost no leverage, and yields 5.7%. The Nuveen New York Dividend Advantage Municipal Fund 2 (NXK) has a yield of 5.8%, is currently trading at a discount to NAV, and has about 26.5% leverage, much lower than the average leverage of 34.7% for all the CEFs. The Nuveen Investment Quality Municipal Fund Inc. (NQM) yields 6.6%, utilizes about 29% leverage, and trades at a slight discount. WallStreetNewsNetwork.com just updated its list of tax free income closed end funds, which describes almost 200 ETFs,, including yields, discounts/premiums, leverage, management fees, date founded, and other information.
High income taxpayers love municipal bonds, as they provide income that is tax free from Federal income taxes, and if the bond is issued from the state in which the taxpayer resides or from one of the territories of the US such as Puerto Rico, then the income is also exempt from state taxes. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments. Here are the advantages and disadvantages of munis and muni CEFs.
Municipal Bonds
Advantages:
1. You can pick and choose what governmental agency you want to loan money to. Maybe you want to stick with the bonds from the cities and counties near you that you are familiar with.
2. Bonds have a maturity date. This means that no matter how high interest rates go, and no matter how low the bonds drop in value, at maturity, the bonds are paid off at par.
3. What your bond is worth is what your bond is worth; in other words, the trading price of CEFs may be far higher or lower than the net asset value of the fund.
Disadvantages:
1. Higher minimum investment. Although munis are issued in $5,000 denominations, a round lot is generally considered by many firms to be $100,000.
2. Less diversification. Because of the higher minimum, investors can't own as many diverse bonds as they could with a CEF.
3. Interest payments only twice a year.
4. No professional management or monitoring.
5. Illiquidity. Munis are not traded on an exchange, and estimated prices given on brokerage statements can be way off from what brokers will actually offer you if you want to sell. This actually happened to me; I received an offer of five points less than what the statement showed a couple days before, with no change in interest rates over those couple days.
Municipal Bond Closed End Funds
Advantages:
1. No minimum investment. You could technically buy one share.
2. Monthly income.
3. With the monthly income, you receive you capital back faster, and you can do quicker compounding of your income.
4. Very liquid; traded on major exchanges.
5. Narrow bid and asked spreads compared to municipal bonds.
6. Can sell off small portions if funds are needed. In other words, if you had $10,000 invested and needed to cash in $1,000 worth, you could do it with a CEF but not with municipal bonds.
Disadvantages:
1. You pay a management fee and other administrative fees.
2. Some CEFs use leverage. You should beware that this increases the risks to the investor.
3. Some CEFs may be trading at a premium to net asset value. You want to look for those trading at a discount.
4. No maturity date (other than a few target funds). If rates go up and continue to rise during your lifetime, you may never get your principal back.
As you can see, there are benefits to both municipal bonds and municipal bond closed end funds. Just make sure that you are familiar with the risks and costs of each.
Disclosure: Author does not own any of the above at the time the article was written.
By Stockerblog.com
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