NPS: A Leveraged Income Machine in a Volatile Market

In a world of market volatility and rising interest rates, investors are scrambling for steady income streams. Enter Canadian Large Cap Leaders Split Corp. (NPS), a uniquely structured investment vehicle offering a 12.72% annual dividend yield on its Class A shares—far above the Canadian equity sector’s average of 1.23%. This article dives into why NPS stands out as a contrarian play in today’s uncertain environment, leveraging its split structure to amplify income, tax efficiency, and stability.

The Split Structure: Built for Leverage and Income

NPS is a split-share corporation, meaning it issues two classes of shares: Class A (common shares) and Preferred. The Class A shares target monthly noncumulative dividends, currently set at $0.13/month, totaling $1.58 annually. This translates to a 12.72% yield based on its May 2025 share price of $11.88. The magic here lies in the leverage inherent to the split structure:

• The Preferred shares act as a fixed-income component, offering a 2.6% annual coupon with a 2029 maturity date. Their capital is used to boost the equity portfolio’s purchasing power, effectively creating a leveraged exposure to large-cap Canadian dividend growers.
• The Class A shareholders benefit from this leverage, as the Preferred’s fixed returns free up capital to pursue higher-yielding opportunities.

Tax Efficiency: A Preferred Advantage

While Class A shareholders enjoy the high yield, Preferred shareholders gain tax efficiency. The 0% franking credit on dividends means their payouts are taxed at the investor’s marginal rate, avoiding the double taxation common in some jurisdictions. For Canadian investors, this aligns with the dividend tax credit, making NPS’s Preferred shares a tax-advantaged income source compared to traditional equities.

Dividend Stability: Backed by Blue Chips

NPS’s portfolio is anchored in $10 billion+ market cap Canadian dividend growers, including stalwarts like Royal Bank of Canada, BCE, and Enbridge. These companies are highly liquid, with payout ratios averaging 49.93%—well below the danger zone of 60% or higher. This conservative coverage ensures dividends are sustainable even in downturns.

A Contrarian Play: Buy the Dip, Lock in Returns

At its current price of $11.88, NPS is 16.6% below its 52-week high of $14.25, offering a rare entry point. Meanwhile, its 18.1% one-year total return outperforms the S&P/TSX Composite’s 15.8%, despite underperformance over longer horizons. This creates a contrarian opportunity:

• Volatility is your friend: In choppy markets, NPS’s fixed dividend and leveraged structure act as a ballast, shielding investors from equity swings.
• 2029 Preferred maturity date: The fixed timeline creates a known exit, ideal for investors seeking predictability.
• Pension fund outperformance: NPS’s Tier I equity scheme delivered a 20.92% return in 2024, trouncing rival pension vehicles, underscoring its fund manager’s skill.

The Bottom Line: Act Now

NPS is no ordinary stock—it’s a yield machine designed for income investors in volatile times. With a 12.72% dividend yield, a fortress of blue-chip holdings, and a tax-smart structure, it’s a rare blend of leverage, stability, and contrarian value.

For income-focused investors, NPS offers a risk-reward profile that’s hard to beat. Don’t wait—act now before the market catches on.

Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.