That’s the promise of the “Newsmax Undercover Report” from Bill Spetrino’s Dividend Machine newsletter, which I don’t think I’ve looked at before. Here’s how the pitch begins:

“While the Government Blows Your Money on $326 Pizzas . . . $3.9 Million Desk Rearrangements . . . and Billion-Dollar Moats . . .

“An Inner Circle of Fed Up Americans Are Exacting Their Revenge by Exploiting a Forgotten, Seven-State, Constitutional Clause to Claim Weekly TAX-FREE ‘IRS 8b Payouts’ of $1,196 or More

“And Today, You Can Join Them as You . . .

“Legally Skirt the Tax Man All the Way to Easy Street!

“Hurry! To Take Advantage, You Must Act Now:

“Senate Bill S.3018 Threatens to Close the Loophole to New Applicants Forever . . . ”

So … what is he talking about? How about a few more clues?

“How to Get Seven States to Pay You Tax-Free Money Every Week . . . for the Rest of Your Life!

“You may not realize it, but there is a very lucrative (and easy) way to have seven states send you a steady flow of cash . . . while avoiding the tax man.

“I named this powerful loophole an ‘IRS 8b Payout.’

“And thousands of ordinary Americans are already collecting them. Many receive them every single week.”

There are also a few nice little quotes from reliable sources, just to reassure us that Spetrino isn’t a loon:

“Steady Income in Unsteady Times” — Business Week

“These IRS 8b Payouts ‘will outlast Obama’ — Forbes Magazine”

And some more detail?

“The best part is that these checks must be sent to you, no matter what.

“Even if Any of These Seven States Go Bankrupt, Your ‘IRS 8b Payouts’ Must Be PAID . . .

“It’s an obligation that is mandated by an obscure clause in each of their constitutions.

“And here’s the real kicker: You don’t even have to live in one of these states or have ever been a resident to get paid.”

OK … so the mystery is not all that super-mysterious this time out — Spetrino is talking about … municipal bonds.

Sexy, huh? Wake up! I said, “sexy, huh?”

The 8b refers to the line in your Form 1040 where you enter the tax-exempt interest you received that year, though you don’t have to pay taxes on it (thus the “tax-exempt”). This is usually income from state and local bonds, which are the mainstay of a lot of retirees’ portfolios.

And yes, there are some states that have special provisions in their constitutions for handling debt concerns — Spetrino points out seven that have rules about paying bondholders before spending any other money, or for automatically kicking in special taxes if the bond interest can’t otherwise be paid, or stuff like that.

Of course, even without such provisions municipal bonds have historically been extremely safe — only a few defaults have occurred, and a couple near defaults — most folks seem to think that even if a local or state budget is getting crushed it’s generally unlikely that they’ll default, since they know the budget just gets worse when they have to ramp up interest payments on all the other money they’re borrowing if investors don’t trust them any more.

Spetrino spins this as a bit of a “taxpayer revolt” issue, implying that getting municipal bond income is some kind of “revenge” — he talks about the way-overbudget Big Dig in Boston, about wasteful spending from school districts, “overpaid” police officers, sanitation workers, and other oft-referenced government waste and says “is this how you want your tax money spent?”

Of course, much of that money was spent because the local government was able to borrow money at low rates from … you. And from other municipal bondholders. So in effect he seems to be saying that if you hate the way a local government is wasting money, you should lend them some more for their next big project, and the fact that you won’t have to pay federal taxes on the income gives you some kind of warm feeling inside (you may have to pay state or other taxes, depending on the state and on where you live). So the logic seems odd to me, but this is a fairly standard kind of investment, particularly for people who are in higher tax brackets and are focused on after-tax income.

Times are a little scarier for muni bond holders now than they were five years ago, though — I personally worry about a lot of the states and about their ability to repay the massive debts they’re taking on. Well, no, that’s not true — I do think they’re going to have trouble, but I don’t worry about it that much … life is too short. None of the states are in nearly as bad shape as the federal government in terms of their balance sheet and unfunded obligations, of course, but none of them have the same power or can issue their own currency to help lessen the debt burden, either. There are certainly plenty of dire predictions out there about muni’s treading the same path blazed by subprime mortgage bonds, though that may be overstating it even given the dramatically out of control spending by states and local governments, and the hefty obligations many (or most) of them have taken on. For one recent perspective, there was an article in Time earlier this week about muni’s and whether they’ll be the next “land mine.” Barron’s also covered muni’s this week with an article about finding the safest ones, if you want something slightly more optimistic.

If I’m guessing (as I usually am), I expect that muni bond defaults probably will remain quite rare, though it wouldn’t be shocking to see a few of them pop up here and there and there have definitely been plenty of reports about scary state finances and missed muni bond payments. Do note that if states and localities do start defaulting in a prominent way, it’s likely that many other unrelated muni bonds will be impacted as well, with investors getting worried and demanding higher interest rates, which would depress the price of any bonds you might be holding (assuming you need to sell them before maturity) … and, of course, make things worse for state budgets, which makes them borrow more money at higher interest rates, and so on. And likewise, though the after-tax rates on many muni bonds are attractive compared to Treasuries, these are fixed-rate bonds, so they’ll take a similar hit if inflation comes … as, I think, it must … someday.

So that’s the “top secret” investment using a “forgotten loophole” — municipal bonds. Woopee! Every broker will be happy to find some appealing ones for you if you decide to lend the gummint some money, and most of the larger states also have muni bond mutual funds available that focus on that state, along with, of course, plenty of closed-end and mutual fund offerings for a broader municipal bond portfolio if you don’t care about local state tax deductibility — and do note that for many states, you get a double extra bonus for buying in-state bonds, with state tax exemption on top of your federal tax exemption, so in some states, particularly those with high income taxes, that can be worthwhile. There are also a passel of ETFs for muni bond investors — there was a good overview of them in ETFdb a couple weeks ago, also noting some of the risks.

Oh, and that Senate Bill that “threatens to close the loophole to new applicants forever?” That’s Senator Wyden’s tax reform bill, S. 3018, which was introduced in February and is sitting in committee. From my quick scan of the bill, it seems like they’re replacing the tax-exemption of municipal bonds with a tax credit — instead of being able to exempt the income from those bonds, you’d get a tax credit for 25% of the income your received from those sources. Which ends up being awfully close to the same thing for man people, and I think one of the few things we can assume is that Congress is not going to do something that makes it even harder for states to borrow money, since they’d just have to rescue those states, or that hurts retirees, who are pretty much the only people who reliably show up at polling places to vote (I didn’t check to see if there are other limitations on muni bond income in this bill because, well, it’s still in Committee, it’s just a bill, and if you think major tax reform of any kind is going to go through Congress you’re … let’s just say “crazy”).

I’m not much of a bond analyzin’ guy — I think most of us active individual investors are probably underexposed to bonds, but I prefer to do my bond investing through mutual funds, though that may change as I get closer to retirement age (not that I’ll ever retire from this delightful sleuthifying, of course, they’ll have to drag me out of here!)

And for a quick little bonus, I should note that our Dividend Machine friends are also teasing some dividend-paying stocks — including what he calls …

“The World’s Greatest Dividend Stock (That’s BARRED From Advertising)

“There’s only one stock out there that would have turned a $30,000 investment in January 1970 into $31,890,000 today.

“Last March alone, you would have received dividends totaling $525,000!

“This company has huge margins . . . its products enjoy intense brand loyalty . . . and the company has a 50 percent market share!

“You’d never guess a company BARRED from advertising would see such tremendous results. But it goes to show the true LOYALTY for what this company offers.

“And thanks to its incredible business model, it has paid a steadily increasing dividend for the past 40 years straight!

“This is literally the type of investment that you can ‘set and forget.’ It has survived and even thrived during countless recessions and economic slowdowns. And it’s in a business with big barriers to entry for other companies.

“This company has been highly successful since 1902. And it has rewarded shareholders every step of the way.

“If you’re already retired, you can rely on the steadily increasing dividend payments you’ll receive from this company.

“If you’re just starting out, then this one company could build your wealth dramatically over time.”

That, my dear Gumshoe friends, must be Altria (MO) — the US company that spawned Marlboro, one of the massive world-beater brands of all time, was indeed founded by Phillip Morris (which at the time was a British cigarette company) back in 1902. And it has famously been one of the titans of long-term investing, raising dividends and generating great returns for investors for decades.

It’s not a company I know well because I’m not interested in investing in tobacco companies for personal reasons, but you certainly can’t argue with its performance — do note that the current Altria is a shell of its former self, spinning off their US food brands and their international cigarette business in recent years, so what you’re largely getting if you buy Altria is a high cash-flow, relatively low growth (or shrinking, though the whole “addiction” thing really helps keep margins high) business in Marlboro and Virginia Slims cigarettes and some of the market-leading smokeless tobaccos, mostly in the US.

And there was one more, too — our cup runneth over:

“Build Generational Wealth From 600,000,000 Hungry Middle-Class Indians

“In India, more than 600 million people are younger than 30.

“They are newly successful . . . driving their first car . . . buying their first home . . . and beginning to experience the middle-class consumer lifestyle.

“Naturally, all of these people will want to eat . . . fast.

“And one company is capitalizing on it . . .

“The way this company sees it, India has the same opportunity China had 10 years ago.

“In fact, one of their newest stores in India is serving 2,000 people a day! That’s a big reason this company wants to quadruple the number of fast food chains it has in India.

“This expansion already has helped the company pad its cash flow. And with so much money pouring in, this company should easily continue to pay out a steady dividend for decades to come.

“Already, this company has paid a steadily increasing dividend for 23 quarters straight. And it shows no signs of letting up.

“I tell you everything you need to know in a special report, Receive a Check Four Times a Year from the Indian Fast-Food Explosion.”

So hoo dat? The Thinkolator only needs a few moments on “pulse” to tell us that this is: Yum Brands (YUM)

Yes, Yum is almost always teased as a China play these days and China and the US are certainly their biggest markets, with China supplying much of their growth … but India is up there, too, as one of the leading lights of their international expansion. Pizza Hut is particularly popular in India as a middle class “fancy” meal (as in China and Brazil, among other places), and PIzza Hut won a prize for being the most trusted food brand in India recently, so this is certainly a major part of their expansion push — though it won’t catch up with China for a long time.

And yes, YUM does pay a dividend that they’ve pretty consistently raised over the last ten years or so (the restaurant group of Taco Bell, Pizza Hut and KFC spun off from Pepsi about 15 years ago, but took on their current identity when they acquired A&W and Long John Silver’s in the early 2000s.) It’s not a big dividend, about 2% at the current price, but dividend growth and a growing underlying business should usually be more important, to long-term investors, than a high current yield. The stock is down about 10% from the all-time high that they hit back in April, before this most recent correction, but still has had excellent performance in recent years and trades at a forward estimated PE of about 14. Their most relentless competition, McDonald’s, is cheaper and has done far more spectacularly in the stock market over the past few years, the Golden Arches carry a forward PE of about 13, and a dividend yield of over 3% along with significantly higher margins — but you can certainly argue that YUM’s growth potential is higher and their international expansion more focused.

So that’s what we’ve got for the Dividend Machine teasers today — if you’ve got an opinion on muni bonds, or on Altria or Yum, well, I’m sure we’d all like to hear it — just use the friendly little comment box below.

And if you’ve ever subscribed to The Dividend Machine from Bill Spetrino, please click here to let us know what you thought — we don’t have any reviews in yet for that letter, so you might be the first!