These Magnificent High-Yield Dividend Stocks Are Reorganizing. Do Income Investors Have Any Reason for Concern?
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Brookfield Renewable (NYSE: BEP)(NYSE: BEPC) and Brookfield Infrastructure (NYSE: BIP)(NYSE: BIPC) 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.