If you're looking for tax-free yields, municipal ("muni") bonds can provide you with 5%+ distributions that Uncle Sam won't touch, asserts income expert Brett Owens, editor of Contrarian Outlook.

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.

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.

Buying a closed-end fund (CEF) is even easier than buying individual muni bonds. We simply enter the ticker in an online brokerage account, click the "Buy" button and we've got a fund with a handpicked portfolio of 900+ muni bonds (and monthly distributions to follow).

Our tax-free distributions get even better when we buy at a discount. Because CEFs each have a fixed share count, they can trade above and below their net asset values (NAVs). An 8% discount, for example, means we're buying $1 worth of munis for just $0.92.

Let me give you five muni funds that are bargains today. All five pay 5% or more, are exempt from Federal taxes and trade for a 6% to 12% discount to the value of their underlying bond portfolios.

BlackRock MuniYield (MYD), yielding 5.4% with a discount to NAV of 6.2%

Invesco Value Muni Income (IIM), yielding 5.3% with a discount to NAV of 10.2%

Nuveen AMT-Free Municipal Credit Income (NVG), yielding 5.3% with a discount to NAV of 8.1%

Nuveen Quality Muni Income (NAD), yielding 5.2% with a discount to NAV of 11.9%

Invesco Muni Investment Grade (VGM), yielding 5.1% with a discount to NAV of 10.4%

These funds have also been excellent long-term investments. This is important because, in my experience, past performance is the best indicator of future results in CEF-land.

This is especially the case for munis, where the best managers consistently deliver "alpha" thanks to their unfair advantages (connections and capital) in this less-than-efficient corner of the market.

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