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Falling Dollar to Benefit Foreign Dividend Stocks During 2010

Companies / Investing 2010 Dec 29, 2009 - 10:10 AM GMT

By: Nilus_Mattive


Best Financial Markets Analysis ArticleWhile a lot of folks were spending December 25 opening presents, my family and I were hurriedly packing our bags and running off to the airport.

Sure, my daughter managed to score a few small presents before we left, but my wife and I would much rather give her the gift of travel whenever possible.

That’s why we decided to head to India this holiday season (with my in-laws in tow)!

Being here is a great way for all of us to bond with Disha’s family members who still live in Bombay and its outlying areas.

And it’s also a wonderful opportunity for me to do some real on-the-ground research about the sweeping changes taking place in Southeast Asia.

So What Have I Seen in My First Few Days of the Trip?

We’ve been bumming around Delhi so far. And while I expected lots of museums, wonderful shopping destinations, and terrific scenery … I’ve still been surprised at just how cosmopolitan the city really is.

It’s a sign of globalization that you can now get a cappuccino here almost as easily as you can get a chai.

McDonald’s is one of the many U.S. companies profiting from India’s growing middle class.
McDonald’s is one of the many U.S. companies profiting from India’s growing middle class.

Likewise, you can grab a veggie burger from a local McDonald’s … pick up a tube of Colgate toothpaste … or buy a pack of Marlboro cigarettes.

We have yet to get out into the rural areas, but I expect to find John Deere tractors plowing some of the fields and Dell computers inside people’s flats, too.

My point?

U.S. companies — especially the ones with big brand names — are absolutely profiting from the rise of a consumer class here in India.

Many of these companies pay out big dividends, too.

And with the U.S. dollar in a rut, these very same firms also benefit from their substantial foreign sales.

Remember …

A Beaten-Down Dollar Helps U.S. Companies With Large International Operations!

Sure, our trip is costing us a bit more because the rupee has appreciated against the dollar.

But at the same time, a lot of my favorite investments are cashing in from a weaker domestic currency.

A quick refresher on how this works:

When a U.S. company sells a toothbrush or a can of soda in India, it prices that item in rupees.

But eventually, it translates those sales in rupees to greenbacks. So when dollars have weakened against rupees, that equates more U.S. currency in the firm’s coffers.

As a side note: This same phenomenon also allows U.S. companies to compete more effectively on the world stage since they can price their items lower and still make their numbers.

U.S. investors can benefit from a falling dollar.
U.S. investors can benefit from a falling dollar.

Now, taking this one step further …

Let Me Also Show You Why U.S. Investors Can Benefit by Owning Foreign Dividend Stocks

Obviously, there are also plenty of attractive foreign companies operating here in India.

And again, currency exchange rates can have a big impact on how U.S.-based investors fare when they own these firms.

Essentially, investors can still benefit from dollar weakness … but they will do so for two possible reasons that happen on the investment level, not the corporate level:

  1. Because the shares they’re buying were originally priced in a foreign currency, their dollar value can fluctuate with exchange rates.
  2. Any dividend payments received are issued in foreign currency then translated into greenbacks, which means they can go up or down based on currency exchange rates.

The caveat is that a strengthening U.S. dollar will obviously have the opposite effects.

But even then, you’re at least getting a stake in different markets and you still have the potential for solid capital gains and income regardless of the currency drag.

Really, my overall point is that many dividend-paying companies — whether based in the U.S. or overseas — are clearly operating on an international stage these days.

After just a few days in Delhi, that much is obvious!

And with a shrinking world comes a number of new investment angles to think about … new ways to profit … and new ways to diversify our portfolios.

Best wishes,


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