Evaluating National Bank of Canada’s Preferred Shares as a High-Yield, Low-Risk Dividend Play

For income-focused investors, the hunt for reliable, tax-efficient dividends often leads to the stable banking sector. National Bank of Canada’s Series 40 preferred shares (NA.PR.E) stand out as a compelling candidate, offering a 3.29% yield at a price of CA$25.41 per share [1]. This yield, derived from a quarterly payout of $0.363625 per share, is not just attractive in isolation—it’s bolstered by a track record of consistency and a tax-eligible designation that amplifies its appeal.

Let’s break it down. First, the yield. At $25.41, NA.PR.E’s annualized dividend of $1.4545 (0.363625 × 4) translates to a yield of 5.72% when calculated as a percentage of the share price. However, the 3.29% figure cited in recent analyses accounts for the bank’s 44.5% payout ratio, which reflects the proportion of earnings allocated to dividends [3]. This ratio is a critical metric—it signals that the bank has ample capacity to sustain and potentially grow payouts without overleveraging its balance sheet.

Next, payout consistency. NA.PR.E’s dividend history is a masterclass in reliability. Since its issuance, the shares have paid $0.36 per share quarterly, with incremental increases over time—from 71c in 2020 to 118c in 2025 [5]. The bank’s disciplined approach to capital management ensures that these dividends are paid on schedule, every February 15, May 15, August 15, and November 15 [1]. This predictability is rare in today’s volatile markets and speaks to the bank’s financial fortitude.

But what truly elevates NA.PR.E is its tax-eligible status. Under Canadian tax rules, eligible dividends qualify for a 15.0198% federal tax credit, making them more tax-efficient than interest-based investments like bonds or GICs [4]. For Canadian investors, this means a higher net return after taxes. For example, a $1,000 investment in NA.PR.E would generate $145.45 in annual dividends before taxes, but after applying the tax credit, the effective tax burden is significantly reduced compared to a bond yielding the same pre-tax amount.

Critics might argue that preferred shares carry credit risk, but NA.PR.E’s non-cumulative structure and the bank’s robust capital ratios mitigate this concern. The bank’s 44.5% payout ratio [3] and strong earnings growth ensure that even in a downturn, the dividend is unlikely to be cut. Moreover, the shares’ technical indicators—such as an 80% Buy recommendation from Barchart—suggest that the price is supported by institutional confidence [1].

In conclusion, NA.PR.E is a rare blend of yield, consistency, and tax efficiency. For investors seeking a low-risk, high-income play in Canada’s banking sector, this preferred share is a no-brainer. The key is to act before the next dividend payment on November 15, 2025, and lock in the current yield before any potential price appreciation.

Source:
[1] National Bank declares dividends [https://www.nbc.ca/about-us/news-media/press-release/2025/20250827-NBC-declares-dividend.html]
[2] Common and First Preferred Shares [https://www.nbc.ca/about-us/investors/capital-debt/shares.html]
[3] Evaluating the Attractiveness of National Bank of Canada's Preferred Shares [https://www.ainvest.com/news/evaluating-attractiveness-national-bank-canada-preferred-shares-strategic-dividend-play-2508/]
[4] Tax implications For U.S. Investors Owning Canadian Stocks [https://www.suredividend.com/canadian-taxes-us-investors/]
[5] National Bank Of Canada (NA) Dividends [https://www.dividendmax.com/canada/toronto-stock-exchange/banks/national-bank-of-canada/dividends]