I have held Brookfield Infrastructure Partners LP (BIP.UN) for years. Recently, a small number of Brookfield Infrastructure Corp. (BIPC) shares appeared in my account. Where did they come from and what should I do with them?
Back in September, Brookfield Infrastructure Partners LP (which I’ll refer to by its stock symbol, BIP.UN) announced plans to create a publicly traded Canadian corporation called Brookfield Infrastructure Corp. (which I’ll refer to as BIPC).
Like BIP.UN, BIPC gives investors access to the company’s extensive global portfolio of infrastructure assets including utilities, pipelines, railways, ports, toll roads and communications towers. But BIPC is specifically aimed at certain institutions and U.S. retail investors who are unwilling or unable to hold limited partnership units. The move was also designed to broaden the company’s eligibility for certain indexes and exchange-traded funds.
But the split has also confused some investors, based on the e-mails I received. So let’s review the mechanics of what happened, and then we’ll discuss the implications for investors.
Under the split, which was completed on March 31, BIP.UN unitholders received one share of BIPC for every nine BIP.UN units held. The new shares didn’t replace BIP.UN units; if you held 100 BIP.UN units before the split, you still had 100 BIP.UN units after the split, plus 11 new BIPC shares and a small amount of cash to reflect the fact that no fractional shares were issued.
But you may have noticed that, on the day the split became effective, BIP.UN’s market price plunged by 8.6 per cent. This was no cause for alarm. All that happened was that – continuing with the example – the total value of your BIP.UN holdings was now spread across 100 BIP.UN units and 11 new BIPC shares.
What should you do with your BIPC shares? Well, BIP.UN and BIPC will pay the same distribution of 48.5 US cents per quarter and their prices are expected to track each other closely. The only difference is taxation. As a Bermuda-based limited partnership, BIP.UN’s distributions have historically included foreign dividend and interest income, Canadian source interest, other investment income, capital gains and return of capital. As a corporation, BIPC will pay eligible dividends that qualify for the dividend tax credit (DTC).
If you hold BIP.UN and BIPC in a registered account, the tax treatment is moot and there is no advantage to owning one over the other. However, in a non-registered account, BIPC might be the better choice because of the DTC, and because BIPC’s tax reporting will be more straightforward than BIP.UN.
Another thing to consider: According to the company, investors can exchange their new BIPC shares on a one-for-one basis for BIP.UN units by contacting their broker. One advantage of consolidating your holdings under BIP.UN is that, if you decide to sell your units, you’ll only pay one commission instead of two.
Brokers are supposed to have the ability to do such exchanges now, but when I contacted my own broker the rep was not aware of this option and said she would have to look into it. That was several days ago and I’m still waiting for a response.
“All brokers can facilitate this exchange and if they are unsure how to do this, we would suggest they contact us,” Melissa Low, Brookfield Infrastructure’s vice-president of investor relations, said in an e-mail. Investors who hold BIPC shares directly in registered form can contact the company’s transfer agent, Computershare, to request an exchange, she said.
The company is also exploring whether it could facilitate exchanges of BIP.UN units into BIPC shares, Ms. Low said. But there are no specifics at this time.
As a Brookfield Infrastructure investor (I own BIP.UN and BIPC personally and in my model Yield Hog Dividend Growth Portfolio – tgam.ca/dividendportfolio), I believe the company has a bright future. With the new corporate structure attracting a broader base of investors, the outlook just got even better.
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I see that Bank of Montreal (BMO) has announced a 2-per-cent discount on shares purchased through its dividend reinvestment plan. What is the reason for this?
It’s not the first time BMO has done this. According to Scotiabank analyst Sumit Malhotra, BMO has offered a 2-per-cent DRIP discount five times since 2009.
In a press release, BMO said it is “supporting its customers in these challenging times in a variety of ways, including through new loans, which the dividend discount will help support.”
By offering a discount, BMO is presumably hoping to attract more shareholders to its DRIP, which is a tool for the bank to raise capital. Every time an investor uses his or her dividend to purchase stock from BMO’s treasury, it’s like a share offering – except on a much smaller scale.
But all those small DRIP purchases add up. In the past when BMO offered a 2-per-cent discount, participation in the DRIP averaged 34 per cent, Mr. Malhotra said. Assuming a similar participation rate this time, BMO would issue more than $900-million in common equity through its DRIP over the next year, he said.
Given the economic disruption caused by the coronavirus and the fact that BMO has the highest weighting of any bank to business lending, “it is reasonable to question whether the bank has opted to bolster capital before the operating backdrop makes it a necessity,” Mr. Malhotra said in a note.
E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.
John Heinzl