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International Dividend Stock Plays to Hedge Against a Weak U.S. Dollar

Companies / Dividends Oct 04, 2012 - 01:36 PM GMT

By: Roger_Conrad


Politics and investing rarely mix well. That’s worth keeping in mind as election-year rhetoric heats up this month. But no matter who wins the White House and Congress in November, investors should have money beyond the dollar.

Foreign-based power, pipeline, communications and water companies are the ideal vehicles. Not only do you benefit from countries growing faster than the US. They also pay dividends and are priced in currencies other than the US dollar, so the buck’s loss is US investors’ gain.

The greenback isn’t yet crashing, as its many detractors have repeatedly predicted. In fact, it’s still clearly the safe haven of choice. And, ironically, if there is a fiscal cliff come January 2013 recession worries are likely to send investors scurrying back to it.

The Federal Reserve’s third round of quantitative easing (QE3), however, is fundamentally a weak dollar policy. That means we can count on other currencies to gain ground normally versus the buck in coming years.

There’s no substitute for owning stocks backed by strong underlying businesses.

But buying a few that pay dividends in other currencies is a great way to tap into dollar weakness without sacrificing growth or yield. And you’ll be protected in the unlikely event of a total US dollar meltdown.

Canadian dividend stock, Atlantic Power Corp (TSX: ATP, NYSE: AT) for example has reported several favorable developments, including the hiring of an experienced chief financial officer, solid second-quarter results and strong progress on the construction of the 300-megawatt Fort Hills wind farm in Oklahoma.

Analyst opinion has remained decidedly neutral to negative, mainly because management faces a challenge re-contracting its Florida natural gas plants. I expect the mood to improve as Fort Hills opens in late 2012.

Meanwhile, Australia’s dollar is backed by similar strengths as the Canadian dollar. The difference is the US is less important as a trading partner, allowing the country to let the currency float more--giving its stocks somewhat more upside.

AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY) and APA Group (ASX: APA, OTC: APAJF) are both invest-to-grow stories, focusing on electric power and gas pipelines, respectively.

Both are capitalizing on Australia’s enactment of a carbon tax to encourage fuel switching to natural gas from coal. Both have very strong balance sheets and are increasing dividends, which are paid in Australian dollars.

AGL trades as an American Depositary Receipt (ADR) on the US over-the-counter (OTC) market under the symbol AGLNY, which should make it relatively easy and cheap to buy here.

APA has only an OTC symbol, but its market capitalization exceeds USD3 billion and trades on good volume.

Both are easy ways for US investors to stick their toe in what’s an undiscovered continent for many. Both companies pay dividends and report earnings twice a year rather than quarterly.

Income investors will want to buy before the next dividend declaration dates, which should be on or about Dec. 17 for APA and Feb. 26, 2013 for AGL.

Both companies recently reported very solid results for fiscal 2012, which winds up at the end of June, mid-winter for the Southern Hemisphere. For more ways to hedge against global currency devaluations, check out The Top Precious Metal Stocks to Own Now.

Roger Conrad is the preeminent financial advisor on utility stocks and income investing. He is the editor of Big Yield Hunting, Australian Edge, and Canadian Edge, as well as Utility Forecaster, the nation's leading advisory on electric, natural gas, telecommunications, water and foreign utility stocks, bonds and preferred stocks.

Mr. Conrad has a track record spanning three decades, delivering subscribers steady double-digit gains of 13.3% annually since 1990. And he’s done it all with a focus on capital preservation and risk minimization by investing in big dividend stocks including Canadian Income Trusts, high-yield REITs, MLP investments, among many others.

Mr. Conrad has a Bachelor of Arts degree from Emory University, a Master's of International Management degree from the American Graduate School of International Management (Thunderbird), and is the author of numerous books on the subject of investing in essential services, including Power Hungry: Strategic Investing in Telecommunications, Utilities and Other Essential Services

© 2012 Copyright Roger Conrad - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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