Most dividends for the vast majority of publicly traded companies follow some sort of long-term trend. Some companies start and halt dividends, increasing or decreasing said dividend over time depending on changing economic conditions.
Other companies follow a rigorous dividend hiking schedule over time, boosting the value of the equity to income-focused investors looking for return over long periods of time.
Some companies, as with utilities company Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN), see the value of their dividend climb and fall over time depending on the strength of the Canadian dollar.
With the company’s dividend issued in U.S. dollars, the impact of the CAD/USD exchange rate is one of the key drivers of the company’s dividend value to Canadian investors; when the Canadian dollar depreciates in value relative to the greenback, the company’s dividend rises (more Canadian dollars per U.S. dollar received via dividend), and vice-versa.
This company, then, is a unique case study in the power of currency exchange rates and how picking a stock such as Algonquin Power is dependent on one’s ability to predict the direction of interest rate movements (not an easy thing to do by any means).
The reality of the Canadian dollar trading at or above $0.80 has boggled many economists who believe over the long-term, the Canadian Dollar will revert toward its lower level (its 50-year level sits around $0.72).
Should this indeed be the case, Canadian investors buying shares of AQN traded on the Toronto Stock Exchange stand to do quite well, as investors pile into the Canadian equity expecting additional currency depreciation.
Invest Wisely, my friends.
