Good news! Investors are about to gain easier access to the top utility stock, Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP), as a corporation. The market celebrated the joyful news by pushing the stock more than 3% higher as of writing.
BIP total returns have handily beat the industry by a mile over the last 10 years. In the period, on the TSX, BIP delivered total returns of roughly 25% per year compared to the 9% rate of return of the best utility index.
BIP owns a globally diversified and quality portfolio of infrastructure assets, including electric and gas utilities, rail, toll road, ports, energy transmission, energy storage, energy processing, telecom towers, and data centers.
From partnership to corporation
BIP is currently a limited partnership — a fact has driven investors are afraid of complex tax reporting away.
On Wednesday, BIP announced its intention to create a Canadian corporation to provide investors with greater flexibility in how they access BIP’s high-quality portfolio.
Current unitholders will get 0.11 shares of the Canadian corporation for one unit they own by way of a special distribution that’s expected to be completed in the first half of 2020. Afterward, investors can freely exchange one Canadian corporation share for one BIP unit and vice versa, as they’ll be economically equivalent with identical distributions.
Benefits of a corporation structure
Offering a corporation structure has five benefits. First, it could increase the demand from U.S. retail investors who can then buy the stock in their retirement plans without the foreign withholding taxes on the dividends. They don’t have to worry about a Schedule K-1 as they do now if they hold NYSE:BIP.
Second, it could enhance demand from institutional investors who don’t invest in partnership units.
Third, BIP will qualify for further index inclusion, which in turn increases the demand for the shares by forcing certain funds to buy BIP shares, thereby pushing the stock higher.
Fourth, Canadian retail investors can freely buy the stock in their non-registered accounts without worrying about complex tax reporting, whereas previously they could only invest worry-free in the TFSA and RRSP where the contribution room was limited.
Fifth, the increased demand in BIP shares will translate to easier capital raising for BIP from the market.
A safe and growing dividend
BIP is a high-growth utility. Since 2009, its cash distribution has compounded at an annual growth rate of 11%. The company aims to increase the dividend by 5-9% per year in the foreseeable future. It currently offers a competitive yield of about 4%.