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Foreign Exchange Plays Key Role in Dividends

Fluctuations in global currencies are not only having an impact on corporate earnings but on dividend growth as well. Asset management firms that offer global dividend funds to clients are in the process of rebalancing their exposure to global markets.

WisdomTree’s director of research, Jeremy Schwartz, reported that “The United States dividend stream of U.S. stocks within the Global Dividend Index increased approximately $40 billion, while the developed world’s (stocks outside the U.S. and emerging markets) dividend stream shrank by a similar amount due to currency headwinds.”

Over the past year, currencies in Brazil, India, South Africa, Mexico and Indonesia were a significant headwind to dividend growth measured in U.S. dollars. Meanwhile, China’s currency actually appreciated relative to the U.S. dollar.

To capitalize on this, WisdomTree Emerging Market Equity Income Fund increased its exposure to China by over 10 percentage points at its June re-balance. Of all emerging market dividend payers, China Construction Bank Corporation had the largest annual dividend payout, with $8 billion of dividends and a dividend yield of 5.4 percent as of July 5. Other Chinese stocks that pay out fat dividends — and that were recently added to DEM — include Industrial and Commercial Bank of China, yielding 5.77 percent, and Bank of China, which yields 6.49 percent as of July 5.

“The average dividend yield on Chinese stocks added to DEM at this year’s re-balance was 6.17 percent, about three times higher than the average dividend yield of stocks in the S&P 500 ,” Schwartz said. “When looking strictly at dividend payouts, we became more bullish on Chinese equities. Stock prices have come down, while dividend growth was positive over the past year. We believe this combination provides a great buying opportunity.”

Fluctuations in global currencies are not only having an impact on corporate earnings but on dividend growth as well. Asset management firms that offer global dividend funds to clients are in the process of rebalancing their exposure to global markets.

WisdomTree’s director of research, Jeremy Schwartz, reported that “The United States dividend stream of U.S. stocks within the Global Dividend Index increased approximately $40 billion, while the developed world’s (stocks outside the U.S. and emerging markets) dividend stream shrank by a similar amount due to currency headwinds.”

Over the past year, currencies in Brazil, India, South Africa, Mexico and Indonesia were a significant headwind to dividend growth measured in U.S. dollars. Meanwhile, China’s currency actually appreciated relative to the U.S. dollar.

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  • Patti Domm

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