Tax-free and ready For Board­ing

Forbes - - Investing -

Big U.S. air­lines are in their best fnan­cial shape in years. Earn­ings are strong, the num­ber of pas­sen­gers is up, lug­gage fees aren’t go­ing away and fuel prices are down.

For high-net-worth in­vestors not in­ter­ested in the volatil­ity or po­ten­tial cap­i­tal loss that can come from own­ing div­i­dend stocks, tax-free air­port rev­enue bonds are a great bet.

Ma­jor air­ports all over the U.S. are re­defn­ing their busi­nesses. Time was, fy­ing from Hong Kong to LAX was like go­ing from the Jet­sons to the Flint­stones. No more. The na­tion’s large air­ports are re­mod­el­ing, ex­pand­ing and mod­ern­iz­ing. Nowa­days a trip to an air­port like At­lanta’s or San Fran­cisco’s is like go­ing to a high-end shop­ping mall.

U.S. air­ports sparkle with star-qual­ity shops like Coach, Brooks Broth­ers, Hermès and Gucci. Their high-end res­tau­rants serve sushi, farm­fresh foods and those $12.95 tuna sand­wiches to take on­board. Th­ese im­prove­ments are not only aes­thet­i­cally ap­peal­ing—they’re proftable, too.

That is why mu­nic­i­pal bonds backed by air­port rev­enues, rather than gen­eral obli­ga­tion bonds, are the way to go—think of Detroit and the piti­ful 41 cents on the dol­lar that some GO bond­hold­ers re­cov­ered. Rev­enue bonds are less po­lit­i­cally tainted and bur­dened. They’re also Stan­dard & Poor’s and yield 2.10% to the call and 2.29% to ma­tu­rity. For those in the high­est tax bracket, that’s a TEY of 3.48% to the call and 3.80% to ma­tu­rity.

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