NEUBERGER BERMAN ENERGY INFRASTRUCTURE AND INCOME FUND ANNOUNCES MONTHLY DISTRIBUTION
- None.
- Investors in the Fund may receive lower distributions compared to investing directly in MLPs due to federal income tax on the Fund's taxable income.
Insights
The distribution declaration by Neuberger Berman Energy Infrastructure and Income Fund Inc. (NML) is a significant indicator of the Fund's current financial health and its ability to generate cash flow. Investors closely monitor distribution rates as they reflect the Fund's operational performance and the projected net rate of return on investments. The fixed rate distribution strategy suggests a stable income stream for investors, which is typically attractive for income-focused portfolios. However, the reliance on distributable cash flow, which includes variable components such as MLP distributions and interest from debt instruments, introduces a degree of uncertainty. The Fund's approach to paying distributions from distributable cash flow, rather than solely from earnings and profits, could indicate a strategic move to maintain investor confidence during periods of variable income.
Furthermore, the Fund's statement that a portion of the distribution may constitute a non-taxable return of capital is noteworthy. While this can provide immediate tax benefits to investors by deferring tax liabilities, it also implies that the Fund might be distributing capital, effectively returning part of the investors' principal. This could be a red flag if it becomes a persistent trend, as it may signal that the Fund's earnings are insufficient to cover distributions, potentially impacting the sustainability of future payouts.
From a taxation perspective, the Fund's unique position of being subject to federal income tax differentiates it from other investment companies that are typically not taxed at the company level. This structure can lead to a reduced distribution amount for stockholders, as taxes diminish the total distributable cash flow. Investors should be aware that the tax burden at the Fund level may result in lower net distributions compared to direct investments in MLPs or other tax-advantaged entities.
The aspect of return of capital distributions also has tax implications. While it provides a tax deferral advantage, reducing the stockholder's basis in the Fund shares, it potentially increases the capital gains tax obligation upon the sale of shares. The Fund's commitment to comply with Section 19 of the Investment Company Act of 1940 by providing notices for distributions not solely consisting of net investment income is crucial for investors to understand the tax characteristics of their distributions and plan accordingly.
Investors and market analysts often view the distribution policies of funds as indicators of confidence in long-term investment strategies. The Fund's intention to make regular monthly cash distributions could be interpreted as a positive signal, suggesting management's confidence in the Fund's investment portfolio and its ability to generate consistent returns. However, the market will also consider the sustainability of these distributions, especially since part of it could be a return of capital. Continuous monitoring of the Fund's performance and changes in distribution composition will be essential for evaluating the attractiveness of NML as an investment, particularly in comparison to its peers within the energy infrastructure sector.
The energy sector's performance, driven by factors such as commodity prices, regulatory changes and overall economic conditions, will directly influence the Fund's underlying investments, especially MLPs. Therefore, the Fund's ability to maintain its distribution levels may be contingent on the broader industry's stability and growth prospects. Analysts will likely scrutinize the Fund's portfolio diversification, exposure to market volatility and the management's adaptability to changing market conditions to assess the long-term viability of the Fund's distribution policy.
The Fund currently intends to make regular monthly cash distributions to holders of its common stock at a fixed rate per share, to be determined based on the projected net rate of return of the Fund's investments as well as other factors, subject to ongoing review and adjustment from time to time. The Fund currently intends to pay its regular monthly distributions out of its distributable cash flow, which generally consists of (1) cash and paid-in-kind distributions from master limited partnerships ("MLPs") or their affiliates, dividends from common stocks, interest from debt instruments and income from other investments held by the Fund less (2) current or accrued operating expenses, including leverage costs, if any, and taxes on its taxable income.
The Fund expects that a portion of its distributions to stockholders will constitute a non-taxable return of capital. A "return of capital" is a distribution by the Fund which represents a return of a common stockholder's original investment, and should not be confused with a dividend. To the extent the Fund pays a return of capital, a common stockholder's basis in Fund shares will be reduced, which will increase a capital gain or reduce a capital loss upon sale of those shares. There is no assurance that the Fund will always be able to pay a distribution of any particular amount, or that a distribution will consist solely of the Fund's current and accumulated earnings and profits.
In compliance with Section 19 of the Investment Company Act of 1940, as amended, a notice would be provided for any distribution that does not consist solely of net investment income. The notice would be for informational purposes and not for tax reporting purposes, and would disclose, among other things, estimated portions of the distribution, if any, consisting of net investment income, capital gains and return of capital. The final determination of the source and tax characteristics of all distributions paid in 2024 will be made after the end of the year.
The Fund is subject to federal income tax on its taxable income, unlike most investment companies. Any taxes paid by the Fund will reduce the amount available to pay distributions to stockholders, and therefore investors in the Fund will likely receive lower distributions than if they invested directly in MLPs.
About Neuberger Berman
Neuberger Berman is an employee-owned, private, independent investment manager founded in 1939 with 2,800 employees in 26 countries. The firm manages
Statements made in this release that look forward in time involve risks and uncertainties. Such risks and uncertainties include, without limitation, the adverse effect from a decline in the securities markets or a decline in the Fund's performance, a general downturn in the economy, competition from other closed end investment companies, changes in government policy or regulation, inability of the Fund's investment adviser to attract or retain key employees, inability of the Fund to implement its investment strategy, inability of the Fund to manage rapid expansion and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations.
Contact:
Neuberger Berman Investment Advisers LLC
Investor Information
(877) 461-1899
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SOURCE Neuberger Berman
FAQ
What is the distribution amount per share declared by Neuberger Berman Energy Infrastructure and Income Fund Inc. (NML)?
When is the distribution payable?
What is the record date for the distribution?
What is the ex-date for the distribution?
How does the Fund determine the rate of its regular monthly cash distributions?
What is included in the Fund's distributable cash flow for making distributions?
What is meant by a 'return of capital' distribution?
How does a return of capital distribution affect a common stockholder's basis in Fund shares?
What happens if the Fund pays a distribution that does not consist solely of net investment income?
How does the Fund handle federal income tax on its taxable income?
Why might investors in the Fund receive lower distributions compared to investing directly in MLPs?
What assurance is provided regarding the Fund's ability to pay distributions of a specific amount?
