There are over 200 closed end funds [for purposes of this article, closed end funds or CEFs are considered stocks] which pay dividends that are tax free. Generally the tax free status comes from non-taxable municipal bond interest, although they can be from tax management of the portfolio. In addition to being exempt from Federal taxes, some of the stocks have dividends that are exempt from state income taxes, depending on the types of muni bonds that are held in the portfolio.
One of the highest yielding stocks with tax favored dividends is the Pioneer Municipal and Equity Income Trust (PBF), formerly known as the Pioneer Tax Advantaged Balanced Trust, which yields 11.1% which is partially tax free. This CEF invests at least 25% to 50% of its assets in income stocks and 50% to 75% in tax free municipal bonds. It was founded in 2003 and pays dividends monthly.
The Colonial Municipal Income Trust (CMU) is one of the highest yielding stocks with a dividend that is completely tax free, paying a yield of 6.6%. They invest in medium and lower quality state and local government municipal bonds, and they pay dividends monthly. They were founded in 1987.
PIMCO California Municipal Income Fund II (PCK) is one of the top yielding California muni bond CEF which pays a yield of 6.1%, exempt from both Federal and California state income taxes. They were founded in 2002 and pay dividends monthly.
BlackRock New Jersey Municipal Income Trust (BNJ) pays the highest tax free yield for New Jersey residents, yielding 6%. They were founded in 2001 and pay monthly.
For Pennsylvania, the Van Kampen Pennsylvania Value Municipal Income Trust (VPV) pays 6% also. Founded in 1992, they pay monthly.
BlackRock New York Municipal Income Trust (BNY) is one of the best yielders for New Yorkers, paying 5.9%. They pay monthly and were founded in 2001.
If you live in Massachusetts, Van Kampen Massachusetts Value Municipal Income Trust (VMV) may be the one for you, paying 5.8%. They've been around since 1992 and pay monthly.
For an Excel list of over 200 stocks that pay tax free dividends that you can download, change, and sort, go to WallStreetNewsNetwork.com.
Author does not own any of the above.
By Fred Fuld at Stockerblog.com