Neuberger’s energy income fund declares another monthly payout, but return-of-capital questions remain

Monthly payout confirmed and what it means for income investors

Neuberger Energy Infrastructure and Income Fund announced a monthly distribution that will be paid at the end of January. For income-focused investors who rely on steady cash flow, the news keeps the fund’s steady payout pattern intact. But the release also signals the same tax and capital-return questions that have followed many energy-focused closed-end funds: part of the distribution may not be ordinary income and could be recorded as a return of capital.

Exact timing for traders and dividend hunters

The fund set the payable date for the end of January, with the record date in mid-January and the ex-dividend date immediately before that. To receive the cash, investors must own shares before the ex-dividend date; shares bought on or after the ex-date will trade without the right to the distribution. Expect the share price to adjust roughly by the amount of the payout once the market opens on the ex-date, which is standard for listed funds.

Why part of the distribution may be return of capital and why that matters

Neuberger’s statement accompanying the payout said investors should expect a portion of the distribution to be treated as a return of capital for tax purposes. Return of capital (ROC) is not taxed when paid. Instead, it reduces an investor’s cost basis in the shares. That lower cost basis means future capital gains — if and when you sell — will be larger, because the taxable gain is measured from the reduced base.

ROC can be benign if it simply reflects the timing of cash in a portfolio that will produce taxable income later. But if distributions consistently exceed the fund’s underlying taxable earnings, the fund is paying out principal rather than operating income. Over time that can leave the fund with a thinner asset base and make future distributions harder to sustain. For income investors, ROC also complicates the picture: a high cash payout looks attractive on the surface, but after accounting for cost-basis reduction and the eventual tax bill at sale, the effective after-tax yield can be much lower.

How the fund generates cash, and the risks that could hit future payouts

The fund builds yield from energy infrastructure holdings, including master limited partnerships and midstream operators, whose business models generate steady fee-like cash flows from pipelines and storage. Those assets can produce strong distributable cash flow in stable commodity environments, which supports monthly payouts.

However, several risks can bite. First, commodity cycles matter: sharp drops in oil and gas activity can cut volumes and fees. Second, many energy funds use leverage to lift distributions; leverage amplifies returns in good times and deepens losses when markets turn. Third, tax rules around MLPs and pass-through entities can create complex allocation and reporting outcomes, increasing the chance some of the cash ends up labeled as return of capital.

Compared with peers, funds that rely heavily on MLPs and use higher leverage tend to offer fatter yields but also show bigger swings in net asset value following energy price moves. For income investors, that tradeoff is crucial: you can get more cash today, but the sustainability and after-tax value of that cash is more uncertain than a yield from simpler, fully taxable corporate dividends.

Practical next steps for holders and traders

Confirm the fund’s official distribution notice and tax characterization when the fund publishes its tax statements. The fund will provide a document explaining how much of the payout is ordinary income, capital gains, or return of capital. Check your broker’s trade confirmations and year-end tax statements; depending on how brokers aggregate reporting, ROC may be reflected in a 1099 or require a separate notice.

If you’re deciding whether to buy, hold, or sell around the ex-date, remember three simple facts: buying before the ex-date gets you the cash but the share price typically drops by the payout amount on the ex-date; ROC reduces cost basis and can increase future taxable gains; and heavy reliance on ROC or leverage raises the risk that the yield will be cut later. For investors prioritizing steady after-tax income, that combination argues for caution rather than chasing headline yields.

Who to contact for details

Investors should review the fund’s shareholder notice and prospectus for the full breakdown and contact the fund’s investor relations or their broker if anything is unclear. The fund’s transfer agent can also confirm record and payable dates and the mechanics of payment. Keep an eye on the fund’s next monthly update; changes in oil and gas markets or credit conditions can show up quickly in future distribution decisions.

Sources

• prnewswire.com