Currency

Backing The US Dollar Can Pay Dividends

Backing foreign currencies is a way to make money for investors with a taste for risk, say financial experts.

The US dollar looks like the big winner, because currencies behave like oil tankers – they take a long time to change direction, but when they do they can take a long time to stop.

Monitoring foreign currency exchange rates can help investors make money.

Take BP shares as an example. Although the company is listed on the London Stock exchange, dividends are paid in US dollars rather than Sterling.

Although the dividend payment has not changed, the amount earned against Sterling has increased because the value of the dollar has risen in that time.

Other FTSE companies paying dividends in dollars include Shell, HSBC, Rio Tinto, AstraZeneca, Carnival and Randgold.

Strengthening currencies are not the only winners.

Another place to look is a weakening currency. Take the Japanese yen as an example. The value of the yen is decreasing against other major currencies, but this is making Japanese exports cheaper and more affordable for other countries.

This can strengthen the profits of some companies, leading to higher dividend payments.

One consideration for investors who want to dabble in Forex trading is exchange rates. At some time, most investors will need to switch their money into their home currency, and this is the pinch point where they could lose value.

Mark Dampier of investment platform Hargreaves Lansdown said: “Watching how foreign currencies move can help you make more money from your investments but won’t help you make good investments.”

QROPS forex options

Forex rates are also important for expats with pensions paying out in Sterling.

If they live in the US or Europe, payments in dollars or euros would be better for them.

British pensions do not have the facility to pay in foreign currency, but Qualifying Recognised Overseas Pensions (QROPS) do.

Rather than lose money on foreign exchange and have to watch for the best rates, switching an onshore pension offshore can be sensible for many expats.

However, the state pension is paid in Sterling wherever the recipient lives in the world.

Nigeria devalues

Nigeria may be a leading oil producing nation, but the government has had to devalue the naira by around 10% and raised interest rates to record levels.

The central bank also raised interest rates 1% to 13%, the first move for three years.

“Our economic problems need some bold policy measures”, said Godwin Emefiele, governor of the central bank.

Leave a Comment