Wednesday, October 29, 2008

Currency & Canadian Investors

The rapid appreciation of the U.S. Dollar vs. the Canadian Dollar is currently changing the landscape for Canadian dividend investors. One month ago 1.00 U.S. Dollar = $1.03 Canadian. As of writing this now $1.00 U.S. Dollar = $1.27 in Canadian funds. This dramatic swing is attributed to a number of factors including the decline in energy and commodities, the abandonment of risk, and a flight to U.S. treasuries.

This phenomenon is affecting Canadian dividend growth investors in several ways:

1. U.S. stocks are suddenly not that cheap anymore.

One month ago buying 100 shares in JNJ at $60 cost Canadians $6,180 ($61.80/share), whereas today the same chunk costs $7,620 ($76.20/share). (an increase of 23%) So much for taking advantage of share price weakness in U.S. names.

2. Every U.S. company held has effectively raised their dividend by 23% in one month.

One month ago JNJ's 100 share dividend as paid into a Canadian's investment account would have been $47.38 Canadian. The same dividend payment would now be $58.42. That is a tangible benefit of currency fluctation.

3. On paper U.S. equities held are 23% more valuable.

Sure buffers the steep sell off in stocks that we've seen over the same period!
This has been the largest one month move in the Canadian Dollar since the 1950s.

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