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Hey, I just wonder what everyone thinks of having the Nuveen NY Municipal Bond Fund (NRK) as part of a dividend growth investment portfolio? I'm mainly considering it because it pays roughly 5.80% and is tax free. It pays a monthly dividend and has paid since 2003, though it doesn't grow at all and has a P/E ratio of over 30, which is awfully expensive. I right now have my money in another tax free muni fund (Oppenheimer) that seems to be bleeding money, and I'm looking to put it somewhere that's still tax free. Even if it's expensive, I'm happy as long as I think that the fund will still pay that monthly dividend, and do so on a tax free basis.
What does everyone think?
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My humble opinion, but I would rather own something like O, KMI, T that offer similar yields but are growing them over time and also offering capital appreciation along with it.
If you'd have owned NRK since 2003 you'd have seen your income drop by 11% over the period and your capital drop by 10%.
An investment in O would have seen your capital grow by 140% and income increase by 88%.
There is something to said about "safe" income, but I'll take growth over safety any day, even if I have to pay some taxes on it.
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I see what you're saying. I actually already own those companies and am talking about having a muni bond fund as part of a dividend growth strategy, not replacing it. While I'm not too afraid of the share price dropping over time (great opportunity to buy more; I've never cared about capital gains), the fact that the dividends have been cut over time is definitely a bad thing. It's an easy investment to buy and reinvest, but one has to wonder if falling dividends makes up for having to pay taxes on it.
Maybe if I was older (like in my 50's) this would be a great idea, but I'm still pretty young. Are there any better funds than NRK? I mentioned that one because I was told about it. I'd like to have some tax free income (without having to lock my money in an IRA), but not at the expense of actual growth.
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Joey, you're getting "pseudo taxed" with the ongoing management fees and by the fact that you can't hold the underlying bonds to maturity. Being a mutual fund, the manager may buy & sell in reaction to market and interest rate fluctuations so you never really get your initial capital back. I understand the diversification aspect and the ability to invest smaller amounts but to me it isn't worth it. I bought a few bond funds back in the 80s and 90s and every time I did (even in a falling interest rate environment) I barely broke even even with reinvestment. I've sworn off bond funds ever since.
One thing I was successful with was called at the time a Unit Investment Trust. Don't know if anything like that is available today. They bought a basket of bonds and held them to maturity. The management fee was real low and they didn't trade the holdings. They pass on the coupon to you and the only time anything changes is if one of the bonds is called by the issuer.
Are your taxes so high that you need to shelter the income? Is the tax-free return higher than your after-tax return? Even on a qualified dividend versus a regular dividend from a REIT?
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
