Middlefield Canadian Income Trust

Middlefield Canadian Income (MCT)

18/04/2023

Results analysis from Kepler Trust Intelligence

·    Middlefield Canadian Income (MCT) has released its results for the year ending 31/12/2022. The trust saw NAV total returns of -2.9% and share price total returns of 5.4% during the period, both in sterling terms. The S&P/TSX High Dividend Index, MCT's benchmark, increased by 5.3% during the period, also in sterling terms.

·    Share price performance during the period meant that MCT's discount narrowed from 13.9% to 7.5%. However, since the period end, the trust's discount has widened again to 11.1%, as at 14/04/2023.

·    The trust's long-term track record remains strong. Since launch in July 2006, MCT has delivered annualised NAV total returns of 7.3%, compared to 6.8% for the benchmark.

·    Dividends for the period totalled 5.1p per share, with a strong dividend coverage ratio of 1.16. This strong coverage, as well as the prospect of higher income earnings from the underlying portfolio, meant the board approved a 0.1p increase to the dividend target for 2023.

·    MCT Chairman Michael Phair said: "The fund's unique Canadian equity-income focus offers an attractive investment proposition for UK investors in the current environment. Given our positive outlook on the Canadian economy, together with the fund's increased marketing efforts and shareholder engagement, we believe the fund's shares represent a compelling investment opportunity."             

Kepler View

Middlefield Canadian Income (MCT) remains one of the only closed-ended funds available to investors in the UK that provides dedicated exposure to Canadian equities. The trust is designed for income investors, with the managers aiming to pay a quarterly dividend.

Canada has long offered an attractive alternative source of income for dividend investors. One attraction has been its proximity to the US. Canadian companies generate a sizeable proportion of their revenues in the world's largest economy. However, equity valuations have typically been lower and there is a stronger dividend culture. For instance, on 12/04/2023, the MSCI Canada Index had a forward P/E ratio of 12.6, compared to 18.4 for the MSCI US Index. And at the end of March, the Canadian index had a TTM dividend yield of 3.2%. The US index's equivalent yield was 1.6%.

Some of the macroeconomic turmoil we've seen over the past 18 months has also worked in Canadian companies' favour. Like the UK, financials make a hefty proportion of the Canadian equities market, with a 35.3% weighting in the MSCI Canada Index at the end of March. Rising rates may prove beneficial here, with the Royal Bank of Canada and National Bank of Canada both reporting higher earnings in March.

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