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Brookfield Infrastructure Partners L.P. (BIP.UN)
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Brookfield Infrastructure Corporation Class A Exchangeable Subordinate Voting Shares (BIPC)
Q: These two stocks (and others) have relentlessly been sold off over the last 4 months. The main reason given by the experts typically is that interest rates are going up and are approaching/exceeding 5%. OK. I get that. But these both pay dividends which are 5%+ and dividends from a tax point of view are better than interest bearing instruments. So it must be that these sellers believe these dividends will not be paid in the future. Is that what is going on here and are they right? Is there a cash flow problem at these companies?
5i Research Answer:
This week there was also a short report issued on BIP.UN, which likely exasperated selling. The report focuses on the different between FFO (funds from operations) and distributions (actual cash received from subsidiaries). As far as these short reports go, it was better than most. It also questioned the NAV of the company, implying it was much lower than expected. Yes, it is a self-serving report, but will likely worry some investors. Dividends are indeed better than interest after taxes, but keep in mind GICs do not decline. In a fearful market, investors don't care so much about taxes--they just don't want to lose any more money. BIP continues to generate strong cash flow and its dividend is well covered by cash flow.