Sunday, March 16, 2008

Top Tax Exempt Dividend Stocks

There are a group of investment vehicles which invest in municipal bonds that generate tax free income. I am referring to them as stocks in this article although they are structured as closed end funds [CEF's], a slightly different animal. The tax-free CEF's have several advantages over buying individual municipal bonds directly:

1. Muni CEF's have better liquidity, with share prices quoted daily.
2. The CEF's provide much greater diversification, for the amount of money invested.
3. There is no minimum investment with a CEF, whereas, you will be lucky to find a brokerage firm that will sell you one $5,000 bond.
4. Most of the CEF's generate monthly dividends, versus a muni bond which only pays semi-annually.
5. It is easier to reinvest your income with CEF's.

Some things you should be aware of before investing in these securities.

1. They may be subject to state income tax.
2. There may be an alternative minimum tax consequence.
(Check with your accountant before investing.)
3. For most of these, there is no yield to maturity.
4. The yield will fluctuate.
5. The price will fluctuate.

Here are a few of the highest yielding tax exempt stocks which came from the list of over 200 tax free stocks at

PIMCO Municipal Income Fund (PMF) is one of the highest yielding tax exempt CEF's, paying a yield of 6.3%. This stock has paid the same monthly dividend, 8.1 cents, since April 2002.

One of the highest yielding tax exempt stocks which does have a maturity is the BlackRock Municipal 2018 Term Trust (BPK), which has a yield of 6.0%. Their monthly dividend has been 7.6 cents since July of 2005.

One of the two highest yielding Florida municipal bond CEF's is the BlackRock Florida Municipal Bond Trust (BIE), which yields 6.2%. They have been paying 7.8 cents per month since July of 2003.

If you are looking for California tax free income, you might want to look at the Nuveen California Dividend Advantage Municipal Fund 3 (NZH), which yields 5.6%. The fund has been paying monthly dividends since November 2001.

Nuveen also has a Texas CEF called Nuveen Texas Quality Income Municipal Fund (NTX), that yields 5.9%. Their dividends have been paid since October of 2001.

There are also New Jersey muni CEF's. BlackRock New Jersey Municipal Bond Trust (BLJ) pays 5.9%. They have been paying dividends since June 2002.

A New York CEF that pays about 5.9% is the PIMCO New York Municipal Income Fund II (PNI). They have been paying monthly dividends since August 2002.

For a list of over 200 tax exempt stocks that you can sort, change, and download, go to

Author does not own any of the above.

By Fred Fuld at

1 comment:

D4L said...

Interesting read! I will have look further into this.

Best Wishes,