Two Brookfield entities are making changes to avoid additional costs.
Brookfield Renewable (BEP 0.74%) (BEPC 1.32%) and Brookfield Infrastructure (BIP 1.61%) (BIPC 0.56%) have done a magnificent job providing their investors with lucrative and growing streams of income over the years. The affiliates of Canadian investment company Brookfield have increased their payouts annually for more than a decade. Meanwhile, each entity offers a high dividend yield — around 5.5% for Brookfield Renewable and 4.8% for Brookfield Infrastructure at Friday’s closing prices.
The high-yielding companies both recently revealed plans to reorganize, which might have investors concerned about what the future now holds for these top income stocks. Here’s a look at what this means and how it might impact investors in these entities.
A short history
As limited partnerships based in Canada, Brookfield Renewable and Brookfield Infrastructure can initially seem a bit complex. Among other things, they send their U.S. investors a Schedule K-1 Tax Form each year. These entities’ trading structures barred them from inclusion in stock market indexes and some tax-advantaged retirement accounts like IRAs.
To get around those issues, Brookfield Infrastructure Partners launched Brookfield Infrastructure Corp. a traditional corporation, in 2020 to provide more investors with the opportunity to invest in the business’ diversified portfolio of high-quality infrastructure assets. The move has been a smashing success. Brookfield Infrastructure’s market capitalization has grown from $17 billion to $29 billion, its average trading volume has doubled, its investor base has tripled, and U.S. and non-Canadian investors now represent over 55% of its investor base.
Brookfield Renewable Partners followed its lead that year, forming Brookfield Renewable Corp. It has also seen its market cap grow (now over $20 billion), and its trading volume has more than doubled as it expanded its investor base (now U.S. and non-Canadian investors hold over 60% of its publicly traded shares).
A reorganization ahead
Both entities recently put out similar press releases announcing a reorganization of their publicly traded corporations (BEPC and BIPC). The companies noted that they’re making these changes to address proposed amendments to the Income Tax Act (Canada) that would result in additional costs to those entities. The reorganization — or arrangement, as they’re calling it — will see current investors in either BEPC or BIPC own an economically equivalent security that provides the same economic benefits and governance as the companies do today. They noted that the arrangement would be tax-deferred for the vast majority of its investors.
The companies plan to provide more details by the end of October. However, the press releases noted that shareholders of the corporations will need to vote on the arrangements in December. If the arrangements are approved, investors will receive newly issued class A exchangeable subordinate voting shares that will trade under the same stock tickers. It is worth noting that unitholders of the partnerships (BIP and BEP) won’t see any impact from the arrangements, nor will they need to take any action.
No need to worry
Brookfield Infrastructure and Brookfield Renewable want to ensure they don’t have to incur additional costs related to their corporate affiliates. That’s leading them to reorganize those entities to protect their economic benefits. It’s a smart move by companies with a long history of making wise decisions that increase shareholder value.
Both companies are in strong positions to increase the wealth of their investors in the future. They both expect to grow their funds from operations at a more than 10% annual rate through a combination of organic growth drivers and accretive acquisitions. That should power their plans of delivering 5% to 9% annual dividend growth. Add their high-yielding payouts, and they should continue generating strong total annual returns. While investors must decide which structure suits their situation, these entities are excellent long-term investments.
Matt DiLallo has positions in Brookfield Corporation, Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Brookfield Renewable, and Brookfield Renewable Partners and has the following options: short January 2025 $60 calls on Brookfield Corporation. The Motley Fool has positions in and recommends Brookfield, Brookfield Corporation, and Brookfield Renewable. The Motley Fool recommends Brookfield Infrastructure Partners and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
