Five Favorite Muni Funds For Tax-Free Income

There’s an easy way to weaken Uncle Sam’s grip on from your income stream; I’m talking about municipal bonds, or bonds issued by states, cities and counties to finance roads, bridges and other projects.

Why muni bonds? For one, they pay a steady dividend that’s entirely tax-free for most Americans, meaning you can keep 100% of your gains forever. Second, your muni income won’t bump you up into another tax bracket, another win that few folks pay much attention to.

The best way to buy munis is through closed-end funds (CEFs), because CEFs let us buy these bonds at big discounts while enhancing the tax-free dividends they hand us. With that, let’s dive into five cheap muni CEFs throwing off healthy income streams now.

Nuveen MI Quality Municipal Income Fund (NUM)

As the name suggests, Nuveen MI Quality Municipal Income focuses on bonds issued by the state of Michigan (or Michigan’s counties, cities and other state-level organizations).

NUM is a rare gem in that it has a tremendous track record (it’s up 8%, on average, per year over the last decade) and a 4.1% dividend stream. That’s way more than the 1.8% you’d get from average S&P 500 stock, and it doesn’t even include the effect of NUM’s tax-free status!

Amazingly, this one trades at a massive 13.6% discount to NAV as I write, though that deal is fading fast. With this narrowing discount, investors are bagging a big profit (for relatively stable investments like munis), with 7.3% total returns for 2019 already.

More gains loom as the tax-weary hordes swoop in over the next few weeks. Beat them to the punch and grab NUM now, while it’s still cheap.

DTF Tax-Free Income Fund (DTF)

Now let’s invest beyond Michigan with DTF Tax-Free. Its multi-state approach means it holds bonds from across the country, with its biggest holding at just 3% of its portfolio. And with a 12.3% discount, it’s similarly discounted to NUM.

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