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

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If you’re looking for tax-free yields, municipal (“muni”) bonds can provide you with 5%+ distributions that Uncle Sam won’t 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 – and paying as little as 88 cents on the dollar!

For quick profits, it’s 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 “tax plan panic” enjoyed total returns up to 16.7% in just 12 months!)

Muni Selloffs Usually Precede Quick Profits

Today: Big Discounts Plus Demand Outpaces Supply

For longer-term income investors looking for steady monthly paychecks, the best time to buy munis is usually anytime – especially for those in a high tax bracket.…
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Municipal bonds are off to a slow start in 2018 – which is usually a bullish sign for these tax-free payers.

We last “pounded the table” on munis in December 2016. They were coming off their worst month since the Great Recession, and we discussed their tendency to rally when they are hated:

“It’s impossible to call a top in yields (or bottom in munis) without the benefit of hindsight. But we contrarians make our money buying when nobody else wants to – and the last time munis were this hated, they returned 30-38% over the next 12 months.”

Turns out that was the bottom in munis.…
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Think it’s time to sell – or avoid – tax-advantaged municipal bonds ahead of the upcoming tax battle?

Think again. There are several compelling reasons why muni bonds are still buys for most income-focused investors.

First, the top federal tax bracket will still be a hefty 35%. Which means, if you’re a top earner, munis will still boost your yield by more than one-third.

No matter what tax plan is approved, municipal bonds will continue to be tax-free at the federal level. The GOP isn’t touching the federal income tax exemption for municipal bonds, which means win or lose, Uncle Sam won’t touch that income (which means tax-equivalent yields up to 9.6%, which we’ll discuss shortly, will still be in play).…
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We hear it every single time the Federal Reserve raises rates, or even merely hints at it!

“Higher interest rates will crush dividend stocks – especially high yielders.”

Sounds scary – but it’s simply not true. And we’ll highlight five picks paying up to 9.2% that will prove just that.

Many high-yield dividend payers don’t care about the interest-rate boogeyman – and some actually outperform the market when the Fed lifts rates. Consider this research from index provider MSCI (MSCI) studying 88 years of market history up through July 2015 (emphasis mine):

“We found that, when rates were low to begin with, high-dividend stocks outperformed the market by an annualized 2.4 percentage points when rates started to go up.

On the other hand, when low rates fell under such conditions, the high-dividend stocks in our study actually lagged the market by an annualized 2.
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About Author

Brett

Hi, I’m Brett Owens – and I’m a financial junkie. My “problem” started incollege, when I got a little dose of the stock market – man, was I hooked…in no time, I was reading the Wall Street Journal religously.

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