Evaluating the Attractiveness of National Bank of Canada’s Non-Cumulative First Preferred Shares Series 47 (NA.PR.I)

National Bank of Canada’s Non-Cumulative First Preferred Shares Series 47 (NA.PR.I) present a compelling case for income-focused investors seeking a balance between yield, risk mitigation, and strategic diversification. This analysis evaluates the shares through three lenses: dividend yield, risk-adjusted return, and strategic fit in a diversified portfolio.

Dividend Yield: A Competitive Edge

NA.PR.I offers a current dividend yield of 4.57%, significantly outpacing the S&P/TSX Composite Index’s average yield of 3.03% and the S&P 500’s sub-2% yield [1]. The shares’ quarterly dividend of $0.3981875 CAD is fixed, providing predictable income for investors [2]. Historical data from 2023 to 2025 reveals a consistent dividend trajectory, with payouts rising from $0.97 to $1.18 for common shares, while preferred shares maintained their fixed structure [3]. This stability contrasts with common shares, which face a 66.88% payout ratio, raising concerns about sustainability during earnings volatility [6].

Risk-Adjusted Return: Balancing Yield and Creditworthiness

While NA.PR.I’s yield is attractive, its risk profile must be scrutinized. The shares are rated Baa3 (hyb) by Moody’s and P-3 (high) by S&P, indicating moderate credit risk but still investment-grade [1]. Volatility metrics show an annualized standard deviation of 4.76% over the past year, with a 6.36% 66-day volatility as of August 28, 2025 [2]. This suggests lower volatility compared to common equities, aligning with preferred shares’ hybrid nature. National Bank’s robust financials—$3.74 billion net income in Q2 2025, a 15.5% ROE, and a 40.5% payout ratio—further support dividend sustainability [1]. However, the non-cumulative feature of NA.PR.I means missed dividends are not owed retroactively, a risk absent in cumulative preferred shares.

Strategic Fit: Diversification in a Global Portfolio

NA.PR.I’s inclusion in a diversified portfolio hinges on its correlation with broader market indices. The S&P/TSX Preferred Share Index, which includes NA.PR.I, outperformed the S&P/TSX Composite by 1.5 percentage points in July 2025 (3.19% vs. 1.69%) [3]. This suggests preferred shares may decouple from common equity performance during favorable market conditions. While the exact correlation between NA.PR.I and the S&P/TSX Composite is unspecified, the Composite’s 0.78 correlation with the S&P 500 highlights its sensitivity to U.S. tech-driven markets [4]. By contrast, NA.PR.I’s fixed-income-like characteristics and exposure to Canada’s financial sector offer diversification benefits, particularly for portfolios overweighted in U.S. equities.

Conclusion: A Strategic Income Play

NA.PR.I combines a compelling yield with moderate risk, making it a strategic addition to income portfolios. Its fixed dividend structure and strong credit profile provide stability, while its performance in the S&P/TSX Preferred Share Index underscores its potential to outperform during market upswings. Investors should, however, monitor the bank’s earnings resilience and macroeconomic conditions, particularly interest rate trends, which could impact preferred share valuations. For those seeking a high-yield, semi-protected income stream, NA.PR.I merits serious consideration.

**Source:[1] National Bank of Canada (TSX:NA) Dividend History, [https://www.tipranks.com/stocks/tse:na/dividends][2] National Bank of Canada (TSX:NA.PR.I) Volatility, [https://www.gurufocus.com/term/volatility/TSX:NA.PR.X.PFD][3] S&P/TSX Preferred Share Index Performance, [https://jzechner.com/preferred-share-commentary-july-2025/][4] Correlation of TSX to the SP500 Futures, [https://app.tradingsim.com/blog/correlation-tsx-sp500-futures/]