Keep an eye on the dollar

THE value of the dollar against the pound can have a huge impact on the income that is paid out to shareholders by way of dividends.

About two fifths of the dividends paid out by companies listed on the London Stock Exchange are issued in dollars or euros. When the pound und fell against the dollar following llowing the vote in June to leave eave the European Union it was good news for shareholders in these companies.

Fiona Cincotta, a market analyst for broker City Index, says: ‘We expect the Federal Reserve to raise interest rates soon. This is due to strengthening growth in the US economy, an improving labour market and inflationary pressures – nothing to do with Donald Trump. A rate rise might lead to a rise in the value of the dollar – further good news for UK investors who get dividends paid in US dollars.’ She adds: ‘If Trump goes on a spending spree inflation may rise as wages go up and households enjoy more disposable income. Rates may need to increase further to keep a lid on this inflation.’ Brian Dennehy of adviser Dennehy Weller & Co says: ‘Companies in the UK with overseas operationso generatin generating profit in US dollars b benefit from a strong stronger dollar. In spite of th the uncertainty aro around President Tr Trump, the dollar is still attractive. UK equity income fu funds exposed to US d dollar earning comp companies will benefit from an e environment in which the dollar is strong.’ Among those funds he believes could benefit from a stronger dollar are Schroder Income and M&G Global Macro Bond. Another highly rated income fund is Neptune Income, whose biggest holdings include Microsoft, JPMorgan Chase and Apple.