I'd like to hear what the knowledgeable folks on this board have to say about Scudder Municipal Income Trust (KTF). This is a closed-end fund in the intermediate-term municipal bond (national) category with $494 million in assets (1% expense ratio), currently rated 5 Stars by Morningstar. It's been in existence since 1988 and pays $.0675 per month dividend. That is $0.81 per year, which at today's close of $11.00, is 7.36%. At my marginal Federal tax rate of 25%, this translates to an annual pre-tax yield of almost 10%!For a long term bond-like holding in a taxable account, I do not see any strikes against KTF. Its volatility is remarkably low, less than half of S&P 500. The price is currently down because of fears of higher interest rates, and it trades at a discount to NAV.One thing I have not been able to locate so far is the dividend history. How stable is the dividend?Any help appreciated!TIA,-dr.nonlinear-
I was able to get the dividend history from Yahoo back to 1993. The dividends appear quite stable and regular. Assuming the historical pattern continues for KTF, I will be getting stock-like returns (low double-digit) at half the volatility. Too good to be true?TIA,-dr.nonlinear-
Dc, I figured out what is wrong with the picture. KTF is leveraged, with oustanding floating preferred equal to about 1/3 of assets. It'll get totally killed if short term rates rise.
You are right about that. From Jan 1994 to September 1994, as short-term interest rates rose, the market price of KTF went from $8.65 to $7.02, a haircut of about 20%. Two points to note:1. The dividend payout continued without a hitch.2. Currently the price is down more than 15% from the peak, precisely as a response to the potentially higher interest rates. It is also trading at a 9% discount to NAV. The marketplace is discounting potential problems, just as you state.It still looks very good to me, for a 10-year hold...Thanks,-dr.nonlinear-
Value is in the eye of the buyer, so if you are happy with the yield, then it doesn't look bad. You might pay close attention to credit quality in the portfolio, as the annual report mentioned tobacco bonds, which were recently downgraded pretty heavily.
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