Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



These Five Income Stocks Will Gain From Sterling Weakness

LONDON -- So far this year, the pound has fallen more than 7% against the dollar, and it's now trading at its lowest level since July 2010.

It looks likely to get worse before it gets better, with fears of a triple-dip recession, the loss of the AAA rating, fudged coalition politics, Mervyn King voting for more QE, and an even more inflation-tolerant Bank of England Governor waiting in the wings.

With 70% of FTSE 100 company earnings coming from overseas, a weak pound can be a boost for the index. It should also be good news for dividends.

Brokers Shore Capital estimate that dividend growth in the FTSE 350 could double if sterling continues to fall against the dollar. Some of the big beneficiaries are the miners, which I looked at last week. But they start from a low base yield.

So I've trawled the FTSE's top 20 highest-yield stocks to screen for those with substantial overseas earnings, especially U.S.-based. With the euro looking at least as vulnerable as the pound, I've screened out companies with high European earnings.

These are the five high-income stocks, all with prospective yields of more than 4.5%, which should benefit most from sterling's woes:

1. BAE Systems
The U.S. is by far the most important market for BAE Systems  (LSE: BA  ) , accounting for nearly half its revenues. The U.K. contributes a fifth, and my guess is that much of BAE's other revenues are dollar denominated.

The imminent impact of sequestration is a threat to BAE's U.S. sales, but, ultimately, I don't believe the U.S. will allow its national defense to be compromised. So I see BAE as a good long-term buy, with a prospective yield of 5.8%.

2. GlaxoSmithKline
GlaxoSmithKline's (LSE: GSK  ) response to the patent cliff -- moving into over-the-counter medicines and emerging markets -- shows up in its revenue split. Just 6% of sales are in the U.K., with the U.S. contributing a third of the total.

Pharmaceutical shares demonstrated their defensive mettle in the 2007/2008 crash, losing just 15% as the FTSE halved. With a broad spread of revenues, a growing emerging markets franchise, and a yield of 5.3%, GSK is all things to all men. Why wouldn't you own it?

3. AstraZeneca
AstraZeneca  (LSE: AZN  ) gets nearly 40% of its revenues from the Americas, with a quarter each from the U.K. and continental Europe. At 6%, it has one of the FTSE's highest yields, with fears over the company's patent cliff weighing on the shares. Already, it's seeing declining revenues.

New CEO Pascal Soriot should update investors with his strategy this month. That seems aimed at repositioning Astra back to scientific innovation, with maybe some biotech acquisitions or joint ventures. It would be a markedly different strategy from rival GSK.

4. National Grid 
Yielding 5.6%, National Grid  (LSE: NG  ) is the monopoly owner of the country's high-voltage network and high-pressure gas system. But nearly 60% of its revenues come from the U.S., where it's the largest power producer in New York state and has large gas and electricity distribution businesses in the northeastern U.S.

A regulatory agreement for the next seven years has just been reached in the U.K. As a result, the company expects to set out its future dividend policy within the next two months.

5. Shell
Shell's (LSE: RDSB  ) revenues are global, but sales are mostly priced in dollars. More importantly, the company declares its dividends in dollars, and its policy is to target long-term growth in the dollar payout.

Shell suffered a setback recently, with its Arctic drilling program put on hold, and it's paid the price of the U.S. shale gas glut. But it has widely geographically diversified operations -- and in the long run its big move into natural gas should pay off -- so the 5% yield looks safe.

Best of the best
Quite apart from the currency benefit, I believe these are five good income stocks. I actually own shares in all of them. One of them has recently been chosen as "The Motley Fool's Top Income Stock for 2013." It's the best of the best for good reason: It should generate a secure and growing income stream for investors.

Its shares have enjoyed a good run recently, but The Motley Fool's analysts believe they could still be worth up to 15% more than the level they are trading at today. That's a nice potential upside on top of a juicy dividend.

To find out which company it is, just click here to download an exclusive report -- it's free.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2295346, ~/Articles/ArticleHandler.aspx, 9/25/2016 3:42:58 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 12:09 PM
AZN $5184.83 Up +27.83 +0.54%
AstraZeneca CAPS Rating: No stars
BA $524.76 Down -12.74 -2.37%
BAE Systems CAPS Rating: No stars
GSK $1652.35 Up +3.35 +0.20%
GlaxoSmithKline CAPS Rating: No stars
NG $1074.87 Down -5.63 -0.52%
National Grid CAPS Rating: No stars
RDSB $1953.61 Up +3.11 +0.16%
Royal Dutch Shell… CAPS Rating: No stars