This trust offers differentiated North American exposure
Thursday 28 Nov 2019 Author: James Crux

Dividend-hungry investors seeking to diversify the stream of income from their investments should look to Middlefield Canadian Income (MCT).

The investment trust is London’s only listed Canadian equity income fund and offers something different to its AIC North America income peers thanks to its Canadian equities bias.

A quarterly dividend payer offering a decent 4.9% yield, there is scope for the 9.9% discount to net asset value (NAV) to narrow and the trust is also drawing premium-priced bids for the steady cash flow generators held within the portfolio.

Launched in 2006 and managed by Middlefield Group’s Dean Orrico using a hybrid of top-down and bottom-up investing, Middlefield Canadian Income aims to deliver a high level of stable income and capital growth through investment in income-paying Canadian and US shares.

Since inception, the fund’s NAV and share price have outperformed the S&P/TSX Composite Index.

CANADA IS WELL POSITIONED

Canada is a robust, reliable international market too often overshadowed by the US. The country’s reliance on imported energy and materials has reduced sharply and the country is enjoying economic growth across sectors including financials, technology, healthcare and infrastructure too.

Orrico argues the income-generating Canadian real estate sector possesses attractive fundamentals including high quality assets, the expectation that interest rates will remain lower for longer and the demand for real assets from institutional investors.

Canada is seeing accelerating levels of immigration and growth in e-commerce; Amazon, Uber, Microsoft and Google are all increasing their Canadian presence, attracted by a wealth of lower-cost tech talent.

PRIZED PORTFOLIO ASSETS

Recent diverse additions to the portfolio include US computer chip maker Intel, Westshore Terminals, a British Columbia-based coal loading terminal operator and Canadian Natural Resources, a global energy producer paying a decent 4% dividend yield.

Shares also notes Middlefield’s stock-picking pedigree is backed up by takeover bids for several of its holdings. Blackstone acquired industrial REIT Pure for a 21% premium in May 2018 and more recently picked off Dream Global REIT, at an 18.5% premium. Furthermore, two major Canadian pension funds have acquired another Middlefield holding, AltaGas, for a princely 31% premium.

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