Unlocking High Yield: XMF.PR.B as a Strategic Income Play in a Low-Yield Environment

In an era where traditional fixed-income investments struggle to match inflation, investors are increasingly turning to alternative yield vehicles. Among these, M Split Corp.'s Class I Preferred Shares (XMF.PR.B) stand out as a compelling option for income-focused portfolios. Offering a 7.25% yield (based on a current price of $5.17) and a 7.50% notional yield, XMF.PR.B combines structural advantages with the stability of a high-quality underlying asset. This article evaluates why XMF.PR.B is a strategic play for investors seeking to navigate today's low-yield landscape.

Structural Advantages: Income Security with Long-Term Flexibility

XMF.PR.B's design prioritizes income security through cumulative, perpetual dividends and non-callable terms until December 2029. The shares are structured to pay a fixed monthly dividend of $0.03125 per share, which compounds into an annualized $0.375 payout. This cumulative feature ensures that any unpaid dividends accumulate and must be settled before common shareholders receive distributions—a critical safeguard for preferred shareholders.

The non-callable nature of XMF.PR.B until 2029 further enhances its appeal. Unlike callable preferred shares, which issuers can redeem at predetermined dates, XMF.PR.B's redemption is set for December 1, 2029, with an optional five-year extension. This creates a stable dividend stream for nearly a decade, insulating investors from premature redemption risks.

Underlying Asset Strength: A Fortress of Stability

XMF.PR.B's value is underpinned by Manulife Financial Corporation (MFC), Canada's largest life insurer. MFC's subsidiaries, including The Manufacturers Life Insurance Company and John Hancock, hold AA- ratings from S&P and A+ ratings from AM Best, reflecting robust balance sheets and prudent risk management. These ratings affirm MFC's ability to sustain earnings and meet obligations, even in volatile markets.

MFC's diversified business model spans Canada, the U.S., and Asia, with core strengths in life insurance, wealth management, and asset management. Its LICAT (Life Insurance Capital Adequacy Test) and BCAR (Best's Capital Adequacy Ratio) scores remain well above industry benchmarks, ensuring ample capital to support dividend payments to M Split Corp. and, by extension, XMF.PR.B holders.

Yield Comparison: A Premium Over Traditional Fixed Income

The 7.25% yield of XMF.PR.B dwarfs current market rates. For context:
- Government bonds: The 10-year Canadian government bond yields 3.57% (as of June 2025), while the 5-year bond yields 3.10%.
- Corporate bonds: Investment-grade corporate bonds average 4.73% in yield, with credit spreads compressing due to improved economic conditions.
- Preferred shares: XMF.PR.B's yield exceeds most Canadian preferred shares, which typically trade in the 5-6% range.

This premium is justified by XMF.PR.B's eligible dividend designation, which allows investors to claim a higher tax credit on the income, effectively reducing the after-tax cost of capital. In contrast, corporate bond yields are fully taxable.

Strategic Appeal for Income Investors

For investors prioritizing capital preservation and reliable income, XMF.PR.B offers a balanced risk-reward profile:
1. Downside Protection: The $5.00 liquidation preference and MFC's strong asset base reduce the risk of principal erosion.
2. Yield Stability: The fixed dividend structure shields investors from interest rate volatility, a key concern in today's environment.
3. Tax Efficiency: Eligible dividend status provides a competitive edge over taxable corporate bonds.

However, investors should note that XMF.PR.B trades at a 3.4% premium to its liquidation preference. While this may seem high, it reflects confidence in MFC's creditworthiness and the shares' structural protections. The premium also offers downside cushion if market conditions deteriorate.

Conclusion: A High-Yield Anchor for Conservative Portfolios

In a world where yields are constrained and inflation erodes purchasing power, XMF.PR.B emerges as a rare combination of high yield, structural safeguards, and underlying asset strength. For income-focused investors, it represents a disciplined way to enhance returns without sacrificing capital security.

Investment Advice: Consider allocating a portion of fixed-income portfolios to XMF.PR.B, particularly for investors seeking a yield premium over traditional bonds. Monitor MFC's credit ratings and M Split Corp.'s asset coverage ratios to ensure continued alignment with risk tolerance. In a low-yield environment, XMF.PR.B is not just an option—it's a necessity for income generation.