Ninepoint's 14% Energy Yield: A Gusher for Investors or a Risky Bet?

TORONTO, ON – December 17, 2025 – In a move that has sent ripples through the investment community, Ninepoint Partners LP announced today it is doubling the annual target yield on its Energy Income Fund (NRGI) to a staggering 14%, effective January 15, 2026. The decision, up from a previous 7% target, signals the firm’s profound conviction in the energy sector’s ability to generate substantial and durable income for investors.

“As the world moves into a new era of energy scarcity and rising power demand, we believe both oil and natural gas are exceptionally well positioned,” said Eric Nuttall, Partner and Senior Portfolio Manager at Ninepoint, in the official press release. He cited a combination of strong free cash flow, long-life assets, and disciplined capital returns as the foundation for the firm’s confidence.

For income-starved investors in a volatile market, a 14% target yield is an almost irresistible siren song. It suggests a reliable stream of cash in a sector often defined by boom-and-bust cycles. But the announcement raises a critical question: is this high-yield promise a sustainable gusher built on solid fundamentals, or a high-risk bet that could leave investors exposed?

The New Paradigm of Energy Profits

Ninepoint’s bold move is rooted in a fundamental transformation within the Canadian energy landscape. The old mantra of “drill, baby, drill”—prioritizing production growth at all costs—has been replaced by a new era of stringent capital discipline. Today, Canadian energy producers are behaving less like wildcatters and more like blue-chip dividend machines.

This strategic shift is evident in the financial reports of industry giants. In 2024, Suncor Energy generated nearly $7 billion in free cash flow and returned $5.7 billion to its shareholders through dividends and share buybacks. Similarly, Cenovus Energy, after generating over $4 billion in free cash flow, returned $3.2 billion to its investors. These companies are no longer plowing every dollar back into the ground; they are rewarding the shareholders who fund them.

This discipline is occurring against a backdrop of what Ninepoint calls “structural scarcity.” Global demand for energy continues to climb, driven by economic growth and the electrification of everything from vehicles to data centers. According to the International Energy Agency (IEA), global electricity demand is forecast to see its highest annual growth rate in nearly two decades in 2024, with strong growth continuing into 2025. At the same time, LNG exports from North America are projected to surge by double digits next year. With supply growth remaining disciplined, the conditions appear ripe for sustained profitability.

Deconstructing the 14% Promise

While the macroeconomic story is compelling, achieving a 14% yield requires more than just owning dividend-paying stocks. The Ninepoint Energy Income Fund employs a multi-faceted strategy, including an actively managed covered call options strategy to generate additional income, or “premium,” on top of dividends.

However, investors must look closely at how such high distributions are generated. The fund’s own prospectus notes that monthly payouts can be comprised of net income, net realized capital gains, and/or a return of capital (ROC). This last component is a critical detail. A return of capital is essentially the fund giving investors a portion of their own money back. While it feels like income, consistent and significant ROC can erode a fund's Net Asset Value (NAV), or its per-unit market value, over time.

“Anytime you see a yield in the double digits, the first thing you should ask is how much of it is return of capital,” cautioned one independent financial analyst. “If a fund is consistently paying out more than it’s earning from income and realized gains, it’s effectively liquidating itself. You get a high distribution, but the value of your core investment shrinks.”

Furthermore, the fund’s prospectus allows for the use of significant leverage—up to 300% of its net asset value. While leverage can amplify returns in a rising market, it can be devastating during a downturn, potentially triggering margin calls and forcing the fund to sell assets at the worst possible time.

A Look Under the Hood: Performance and Volatility

A glance at the fund’s history provides a dose of reality to counter the optimistic forecast. While the year-to-date performance in 2025 has been positive, the fund’s journey has been marked by volatility. According to public filings, the fund’s Series A units posted a negative return of -3.4% in 2024, a year in which its own benchmark, the S&P/TSX Composite Energy Sector Index, returned 24.0%. During that same year, the fund’s NAV decreased by over 30%, a drop attributed largely to net redemptions and unrealized investment losses.

This historical context is crucial. It demonstrates that even with a strategy designed for income, the fund is not immune to the deep cyclicality and price swings of the energy markets. The covered call strategy, while providing premium income, also caps the upside potential. In a roaring bull market for energy stocks, the fund may lag its peers as its holdings are “called away” at pre-determined prices.

The press release itself contains a necessary caveat: “The monthly distribution amount may be adjusted by the Manager without notice throughout the year as market conditions change.” This flexibility gives Ninepoint an escape hatch if market conditions sour, but it also means the 14% target is a goal, not a guarantee.

For investors, the allure of a 14% yield is powerful. It represents a conviction that the energy sector has fundamentally changed for the better, becoming a reliable source of income. Ninepoint’s strategy is a direct bet on this new reality, leveraging a supportive macroeconomic environment and a disciplined corporate culture among producers. Yet, the path to achieving such an outlier yield is paved with complexities and risks—from the fine print on return of capital to the inherent volatility of the underlying commodities. Ultimately, investors must weigh the tantalizing promise of high income against the very real possibility of capital erosion and market turbulence that comes with it.