Safe Tax-Free Bonds Paying 5%+ to Buy and Hold Forever

By Brett Owens

If youaEURtmre looking for tax-free yields, municipal (aEURoemuniaEUR) bonds can provide you with 5%+ distributions that Uncle Sam wonaEURtmt touch. With rates rising, it is a bit tricky to make savvy buying decisions at the moment. But income investors buying smartly today are banking 5%+ yields aEUR" and paying as little as 88 cents on the dollar!

For quick profits, itaEURtms best to buy munis after mini-panics. They seem to happen every year or two, presenting us levelheaded contrarians with safe yields for cheap. (Most recently, readers who followed my advice and bought munis after an irrational aEURoetax plan panicaEUR enjoyed total returns up to 16.7% in just 12 months!)

Muni Selloffs Usually Precede Quick Profits

Today: Big DiscountsPlusDemand Outpaces Supply

For longer-term income investors looking for steady monthly paychecks, the best time to buy munis is usually anytime aEUR" especially for those in a high tax bracket. Muni distributions, after all, typically get a pass from Uncle Sam at the Federal level. (And state-specific funds will extend that dividend courtesy to your stateaEURtms tax return as well.)

I do regularly hear from readers who want more muni ideas. But you know me: why would we discuss an investment unless itaEURtms a bargain?

Well today, certain muni vehicles are cheap (details on which ones shortly). Plus demand for these tax-free bonds is outpacing their supply this summer. Nuveen reports there are only $56 billion in new muni issuances from June through August. Meanwhile, expiring munis are spinning off an extra $95 billion looking to be reinvested.

Headline-reading investors worry about things like aEURoespreadsaEUR in munis aEUR" or their

interest rate advantage over U.S. Treasuries. The margin is as thin as itaEURtms been in years. And itaEURtms a valid concern for those who donaEURtmt know how to buy the right muni bonds.

But investors who do know munis are banking 5%+ tax-free yields today. And some are even securing big margins of safety to boot! How? Simply by selecting the best muni closed-end funds (CEFs).

5%+ Tax Free Yields at Discounts Up to 12%

Buying a CEF is even easier than buying individual muni bonds. We simply enter the ticker in an online broker age account, click the aEURoeBuyaEUR button and weaEURtmve got a fund with a handpicked portfolio of 900+ muni bonds (and monthly distributions to follow).

Our tax-free distributions get even better when we buy at a discount. Because CEFs each have a fixed share count, they can trade above and below their net asset values (NAVs). An 8% discount, for example, means weaEURtmre buying $1 worth of munis for just $0.92.

It also means that we receive more yield . For example, NuveenaEURtms AMT-Free Municipal Credit Income Fund ( NVG ) pays a 4.9% distribution on its NAV. But investors who buy shares today will actually earn 5.3% on their investment (thanks to its 8% discount).

Plus, thereaEURtms more:

  1. The 5.3% yield is exempt from Federal taxes, and
  2. The fundaEURtms 8% discount is potential upside for us if and when this window closes.

Not interested in selling for upside? ThataEURtms fine aEUR" buy these funds at a discount anyway to protect your downside risk.

And since I know most of my readers are buy and hold income investors, let me give you five muni funds that are bargains today. All five pay 5% or more, are exempt from Federal taxes and trade for a 6% to 12% discount to the value of their underlying bond portfolios.

These funds have also been excellent long-term investments. This is important because, in my experience, past performance is the best indicator of future results in CEF-land. This is especially the case for munis, where the best managers consistently deliver aEURoealphaaEUR thanks to their unfair advantages (connections and capital) in this less-than-efficient corner of the market.

5 Muni Funds with 5%+ Tax-Free Yields

And while I like these muni names today, I actually LOVE another group of monthly dividend payers even more. These cash cows are setup to continue dishing out secure 8%+ yearly payouts with double-digit price potential to boot.

Your Best Move Now: 8% Dividends AND Monthly Payouts

My aEURoe8% Monthly Payer PortfolioaEUR focuses on the best monthly dividend buys at any given moment. As you can see, the yield alone makes this strategy quite compelling - if youaEURtmre interested in retiring and making a living on your dividends alone.

With just $500,000 invested, my monthly payer portfolio will hand you a rock-solid $40,000-a-year income stream . ThataEURtms an 8% dividend yield aEUR

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.