The Lemon Fool

Commodity ‘supercycle’ will sustain Middlefield Canadian for five years, says Orrico
29 June 2022
Fund manager Dean Orrico believes we are in a commodities supercycle that should sustain outperformance for his £124m Middlefield Canadian Income trust over the next five years.

He cited a forecast by Jeff Currie, global head of commodities at investment bank at Goldman Sachs, who predicted a 12-year boom across the energy, metals, mining and agriculture sectors, almost two years ago.

Following a 10-year period of strong growth stock performance as interest rates lowered, Orrico now believes the 40-year bull market in bonds has come to an end and a period of deglobalisation has begun, during which commodity prices will remain relatively strong.

‘A major factor driving the last commodity supercycle, which lasted 10-12 years, was the increase in China’s economic activity after it joined the World Trade Organisation in 2001. Will China have the same or even greater demand going forward as it looks like we’re in the early stages of deglobalisation?’ Orrico (pictured below) told Citywire.

Middlefield’s portfolio is split between 15% in oil pipelines, 15% in energy, including renewables, and 25% in both financials and real estate. Canada accounts for 95.9% of the portfolio, with the remainder in the US. Top holdings include Canadian Natural Resources, TD Bank and the Bank of Nova Scotia, which make up 13.9% of the portfolio.

Results released in April showed the closed-end fund outperformed for the fourth consecutive year, with a 38.8% growth in the portfolio beating the 27.4% rise in the benchmark.

The 25% real estate weighting provides a hedge against inflation, which stands at 6.5% in Canada currently.

Calling property the ‘single best equity income vehicle in the market’, Orrico is convinced by the strength of Canadian real estate investment trust (Reits) which have shown they can deliver good returns regardless of high or low inflation.

Targeting high levels of stable income and capital growth, this Fund invests in Canada’s highest quality, large capitalization businesses1. Middlefield Limited, the Fund’s investment manager, is a private and independent firm located in Toronto, Canada and is a member of Canada’s Responsible Investment Association.

RiA - A Responsible Investment Association Member
Further details about the Responsible Investment Association are available on the website at http://www.riacanada.ca

Financial Highlights Page:

2022 DIVIDEND: 5.1p annualised, 1.275p quarterly

YIELD: 4.3%

SHARE PRICE: 118p

NAV PER SHARE: 138.97p

NET ASSETS: £148m

“Why Middlefield Canadian Income PCC ” Page:

Who is this fund for?

This Fund is for long-term investors seeking dividends and capital appreciation from a diversified portfolio of stable, profitable businesses domiciled primarily in Canada

Earnings and Dividends

Two quarterly interim dividends of 1.275p per share were paid on 31 January 2022 and 29 April 2022. This is in line with the payments made in the previous financial year. The Company’s earnings per share totalled 2.85p for the six months ended 30 June 2022, reflecting a dividend coverage ratio of 1.12x. This compares to dividend coverage ratios of 0.95x in 2021 and 0.71x in 2020. Dividend growth from the Fund’s underlying holdings has contributed to the earnings surplus. Over 70% of the Fund’s holdings have raised their dividends since 30 June 2021, many of which have increased their dividends multiple times. Several companies in the Canadian energy sector, such as Tourmaline Oil Corp. and Canadian Natural Resources, have supplemented their regular interim dividends with special distributions due to excess free cash flow. We view dividend growth as a core tenet of long-term investing. Going forward, we expect sustainable growth in dividends from the Fund’s holdings to support and increase the Fund’s dividend coverage. The Board may consider future increases to the Fund’s quarterly distribution if revenue continues to exceed its payout level.

Middlefield Canadian Income PCC is pleased to announce that the board of directors has declared a quarterly dividend of 1.275 pence per Share with respect to Middlefield Canadian Income – GBP PC (the “Fund”).

The dividend will be paid gross on Monday, 31 October 2022 to Shareholders of record on Friday, 14 October 2022. The ex-dividend date is Thursday, 13 October 2022.

daveh wrote:. On 14/9/2022

https://www.investegate.co.uk/middlefie ... 4136H5233/

Financial Highlights Page:

2022 DIVIDEND: 5.1p annualised, 1.275p quarterly

YIELD: 4.3%

SHARE PRICE: 118p

Who is this fund for?

This Fund is for long-term investors seeking dividends and capital appreciation from a diversified portfolio of stable, profitable businesses domiciled primarily in Canada

kempiejon wrote:I have been wondering about MCT, a bit of portfolio management, should they stay or go, as they're in an account I am moving to ETFs. I think it was somewhere on these boards I heard tell of them as a way into Canada and a long history of rising income. I started buying early 2021. I was adding monthly for a year or two as they steadily rose but my average price being a spit below where we are today now. Though the income is fine.

Arborbridge wrote:When I look at the chart, it never seems any better than other things I already invest in, so then I wonder what the point would be. No better than CTY or MRCH.

I notice it does tend to be more volatile than other ITs - in that regard maybe you should be buying more now as it does have a history of upanddownery - though you may have missed the downery part.

dundas666 wrote:Looking at the numbers on the AIC website, MCT doesn't seem to compare well with other North American ITs as it's towards the bottom of the pack for total return over most timescales.

But if you're thinking that's ok because you're in it for the 5%+ dividend, then you should also note that the average annual increase in dividend payout over the last 5 years has been 0.49% pa. Though to be fair the last couple of years has seen a dividend increase of just under 2% pa.

kempiejon wrote:... 5% yield and unique, well certainly rare, in my IT holdings with exposure to Canada ...

88V8 wrote:

kempiejon wrote:... 5% yield and unique, well certainly rare, in my IT holdings with exposure to Canada ...

I bought into this a while ago because at the time they had exposure to Canadian bank preference shares. That seems to have vanished, but they toddle along OK so I've held on to them, although the so-so yield hasn't tempted me to add.

V8

BullDog wrote:5.2% yield when I bought yesterday. Not too shabby and hopefully the price won't plummet on this one. As has happened all to frequently of late for comfort

monabri wrote:Pedestrian dividend increase and 20% gearing. The gearing makes me "nervous" and I don't see any reserves.

https://www.theaic.co.uk/companydata/mi ... st/gearing

(The table on the RHS under "Gearing" is worth a read ).