And a less noticed side effect of sterling's strength is that it has taken a big bite out of the dividends paid to British investors. The
Many of them do little or no business in the
Dollar divis have to be translated into sterling, usually a few days before their 'pay date'.
'The strength of the pound is being felt in
'Dividend growth from the largest global firms looks much less attractive as sterling soars and they struggle to increase what they return to shareholders.'
To make matters even worse, the companies affected number among the biggest dividend distributors on the index.
Four of the top five –
That means British shareholders will see their cheques shrink by around 8pc when they drop through the letter box in October.
'Income investors have several more months of pain to endure before the effect of the strong pound begins to dissipate,' says Cooper.
But the impact is not confined to the dollar denominators. A number of companies such as
The value of those income streams has been depressed in sterling terms, with a knock-on effect on profits and potentially on dividends, though managements have discretion to maintain payouts to absorb some of the effects.
Possibly the single largest blow to British investors came from
Between the announcement in September that it planned to distribute
That meant the sterling value of the dividend plunged from
As if that were not painful enough, there is also the euro factor. The pound ended the second quarter 6.8pc stronger against the euro than a year earlier.
Assuming there is no further rise in sterling, a total
The 'diminishing dollar dividend' effect on small shareholders investing through income funds or their pension may be even stronger than these figures suggest. That is because the
Currency is also an obvious consideration for investors in US or European equity funds, popular with those seeking geographic diversification.
The hope is that the worst of the dollar dividend thrashing might soon be over. The pound has weakened against the dollar recently and slipped again this week after Bank of
Income seekers looking to dodge dollar damage can look at companies that focus on the
And it may be scant consolation, but the yield on shares, at around 4.1pc, is still better than the miserly 1.3pc on a cash deposit.
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