Saturday, November 01, 2008

A Play on Higher Dividend Taxes: Tax Free Income Stocks

Are you concerned about the possibility of higher taxes on dividends? You might want to take a look at tax free income stocks. There are a group of stocks out there, technically closed end funds, which pay dividends that are tax free. This tax free income comes from municipal bonds in the portfolio.

Muni bonds are issued by states, counties, cities, and other governmental agencies. Income from those bonds is exempt from Federal income taxes, and if the bonds are issued in your state of residence, the income is exempt from state income taxes also. Municipal bonds issued by Puerto Rico and other U. S. dependencies are exempt from state income taxes also for residents of most states. There are over 200 different tax free income stocks according to, with over 30 of which yield over 8%.

One of the highest yielding tax free stocks is Pioneer Municipal High Income Advantage Trust (MAV), which yields 9.7% from its portfolio of both investment grade and below investment grade municipal bonds and notes. Its governmental agency bonds include airport, education, healthcare, insurance, pollution control, tobacco, transportation, utilities, housing, water, and industries. They have been paying monthly dividends since 2003.

One of the highest yielding balanced tax-advantaged funds is TS&W/Claymore Tax-Advantaged Balanced Fund (TYW) which yields 9.2%. The fund has a split portfolio: one part invests in a diversified portfolio of value stocks, the other part invests in municipal bonds which are rated A or higher. The fund was founded in February of 2004 and has been paying a quarterly dividend. 25% of the value of the their assets are invested in municipal bond of issuers located in Texas, with 6.4% invested in California, and 4.5% in Puerto Rico. Because it is a balanced portfolio, only a portion of the dividend is non-taxable.

If you live in California, you might want to consider the Van Kampen California Value Municipal Income Trust (VCV) which yields 9.3%. They mostly invest in California investment grade municipals. The fund was founded in 1992 and pays dividends monthly.

Van Kampen also has a high yielder for Massachusetts residents, the Van Kampen Massachusetts Value Municipal Income Trust (VMV), which pays 9.3%. The fund invests in Massachusetts municipals including bonds for education, general purpose, and water and sewer. They have paid monthly dividends since 1995.

There is also their Van Kampen Pennsylvania Value Municipal Income Trust (VPV), which yields 8.4%. This holder of Pennsylvania municipal securities has been paying monthly dividends since 1995.

For you New Yorkers, there is the BlackRock New York Municipal Income Trust (BNY) which pays 8.2%. It invests in New York education, hospitals, housing, pollution control, tobacco, transportation, and water and sewer bonds. It has paid quarterly dividends since 2001.

And if you live in New Jersey, BlackRock has the BlackRock New Jersey Municipal Income Trust (BNJ) yielding 7.8%. They have paid monthly dividends since 2001.

Florida residents can take advantage of the Nuveen Florida Investment Quality Municipal Fund (NQF) yielding 7.5%. They invest in munis issued by state and local government agencies within the state of Florida. They have been paying monthly dividends since 1991.

You can download an Excel database spreadsheet list of over 200 tax free stocks at Keep in mind that both yields and share prices fluctuate, and there is the possibility of bonds in the portfolios defaulting.

Author does not own any of the above.


1 comment:

java.padawan said...

Philippine Stock Market
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