Nuveen Enhanced: Income from Munis
08/11/2016 9:00 am EST
The municipal bond market is low risk and offers higher returns than Treasuries; tax-free income from these is especially useful to investors in higher income tax brackets, explains Todd Shaver, editor of The Bull Market Report.
The Nuveen Enhanced AMT-Free Municipal Credit Opportunities Fund (NVG) is an actively-managed leveraged closed-end fund focusing on high-quality municipal bonds and using leverage to drive dividends higher.
The fund has invested the vast majority of its assets in A-rated or higher bonds, meaning it is sticking to investment-grade, high-quality debtors.
Nearly half of the fund’s holdings are either tied to taxpayer payments or government-guaranteed, limiting default risk even further:
Most crucially, management has demonstrated an ability to pick and choose municipal bonds that have high performance with limited risk, as the fund’s growing NAV and aversion to Puerto Rico in times of uncertainty have demonstrated.
In addition to holding a strong portfolio of municipal bonds, the fund has also begun repurchasing shares. Management bought 17,500 shares at an average 13% discount last year.
Dividends are well covered by net investment income, helping the company give a special dividend that boosted 2015’s yield to over 6.5%.
Many retirees will balk at the idea of leverage. This fund uses it, and is currently 37% levered against its assets.
However, it is important to note that this fund’s low-risk holdings and solid management team mean that this leverage is not as scary as many would think.
In fact, it has historically been used as a powerful tool to boost the fund’s NAV and market performance, both of which are up 7% since inception.
We are initiating coverage on NVG as a strong buy, and hope to see both solid dividend growth and special dividends in the near future. This is a solid pick for income investors.
By Todd Shaver, Editor of The Bull Market Report