Impressive Muni ETF Yields 7.4% Tax-Free and Pays Monthly

by ETF Base on March 8, 2010

The high yield muni market in general has been a stellar performer following the trough of the 2009 financial collapse but there are some striations depending on just which municipalities are covered in a particular holding. Many view California as being on the risk of declaring bankruptcy for instance, while much of the midwest remains relatively unscathed by the economic malaise.  Historically, municipal bonds would yield roughly what Treasuries were yielding on a tax adjusted basis but bargains presented themselves in 2009, especially in light of the unprecedented near zero yields we saw on Treasuries.  While muni bond funds and ETFs have rallied from their recent lows, with markets breathing a sigh of relief, it may be worthwhile at least picking up a steady performer that still carries an impressive yield and has not failed to impress.

High Yield Muni ETF (PMF)

The PIMCO Municipal Income Fund offers several highly attractive attributes that makes it worth considering:

  • 7.4% Yield Tax-Free – Since municipal bonds are exempt from federal taxes, depending on your tax bracket (and with taxes expected to increase given current deficits and our administration’s ambitions), this is equivalent to over 10% on an equivalent tax basis for high net worth investors.
  • Pays Dividends Monthly – note that PMF has been paying a steady dividend for years now with no prior reductions even during the economic crisis.  This steady monthly payout is a nice predictable income stream in the absence of a new financial nightmare.
  • Share Price Up 7.3% vs 2.1% for S&P500 – while PMF slightly underperformed the rebound in 2009, the underlying share price is up nicely on the year, indicating further confidence in the fund’s ability to return steady dividend payments to investors.

There remains risk of share price decline or a cut in the dividend stream of course.  It is likely that a dividend cut would be priced in and shares would start to decline in advance.  It is also worthwhile that this ETF is best held in a taxable account to avoid tax liability complexities since it is already tax-exempt and a high yield tax-advantaged account would be better suited for investments that don’t already offer such tax protection.

Disclosure: I’ve been long PMF since early 2009 when initially highlighted as a Top High Yield Muni ETF.

Allianz link outlining further details.

{ 4 comments… read them below or add one }

Investor Junkie August 16, 2010 at 2:08 pm

That ETF’s beta is a little too risky for me.

For my Muni holdings and since I have a Fidelity account I’m using FGMNX

Much lower yield of course, but also much steadier return.


Investor Junkie August 16, 2010 at 2:11 pm
Peter January 5, 2011 at 1:34 pm

This is NOT a ETF!
This is a closed ended fund, but then again, editors of Financial Web sites probably have a hard time figuring out the difference! Which is why they are providing investment recommendations!


ETF Base January 5, 2011 at 2:19 pm

True, and this is an older article but I don’t “recommend” broad muni CEFs at this time. Too much going on in state and local municipalities. Markets are going to continue to punish bad behavior in my opinion. It was good while it lasted but I’ve since unloaded all muni instruments. Only hold some high yield corporate ETFs at this point; full equities outside of that.


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