The board of Middlefield Canadian Income (MCT ) has lifted its dividend in anticipation of strong returns from its portfolio of banks, energy producers and real estate this year, as the prospect of interest rate cuts marks the weakening of a major headwind.

Chair Michael Phair increased the payout from 1.30p per share to 1.325p, or 2%, for the second consecutive year, which portfolio manager Dean Orrico told Citywire it hopes to do annually from now on, given the 1.1 times cover this year.

Rates will gradually reduce throughout 2024, the Citywire award-winning manager said, and the three-pronged portfolio of financials, energy stocks and real estate investment trusts (Reits), will benefit as investors look elsewhere for income.

‘We don’t think we’re in for a hard landing, but we think the economy is slowing. Even with that, we think these companies are really well positioned because some of the headwinds that existed in 2022 and 2023 are starting to subside, most notably rates,’ Orrico (pictured speaking at the awards) said

Reit share prices were smashed in 2023 in line with rising rates, but those in the portfolio, which consists of high-rise flats, industrials and grocery shops, have maintained good earnings, high occupancy levels, strong demand, as well as benefiting from limited new supply.

Energy producers, which include oil pipelines, have continued a recent trend of prioritising shareholders rather than reinvesting into their businesses off the back of stable oil and gas prices and low debt, meaning they have been increasing dividends.

Financial stocks including banks and wealth managers that make up the third leg of the portfolio are also well positioned as government bond yields fall, encouraging investors back into high-yielding alternative investments, while capital market activity should also pick up.

Referring to the December US jobs data last week that dashed hopes of an early rates cut, Toronto-based Orrico was not surprised, pointing to the revisions for the previous two months, which were more bearish. The US 10-year government bond yield barely moved, which was a reflection of that.  

The largest individual positions are oil and gas company Canadian Natural Resources, energy infrastructure business AltaGas and Royal Bank of Canada, which respectively make up 5.5%, 5% and 4.6% of assets. 

He added that the Central Bank of Canada, which started raising interests earlier than the Federal Reserve, could also start cutting sooner, boosting the entirely Canada-domiciled portfolio.

Shares in the £158m trust rallied briefly at the end of the calendar year, but remain down 8% over 12 months, trading at a 15% discount to the most recent net asset value of 121.62p per share, according to data from Deutsche Numis.