A couple of weeks ago, I wrote that “as the U.S. dollar has weakened against the Canadian dollar, it could be an opportune time for Canadians to buy U.S. stocks and for Americans to stick with U.S. stocks instead of buying Canadian stocks.”
Since then, as shown in the chart below, the USD has recovered slightly.
Notably, the USD is still a way off from its five-year midpoint of approximately C$1.30. Moreover, the WTI oil price is at a high point of +US$71 per barrel, which could weaken from there. Therefore, Canadian and U.S. investors alike are probably better off continuing to invest new money in U.S. stocks trading at good valuations.
Much like two weeks ago, I still find value in Bristol-Myers Squibb (NYSE:BMY). Merck (NYSE:MRK) that’s in the same space is also similarly undervalued. The dividend stocks offer decent yields of about 3%.
Contemplating what dividend stocks to invest in June 2021? As the U.S. dollar has weakened against the Canadian dollar, it could be an opportune time for Canadians to buy U.S. stocks and for Americans to stick with U.S. stocks instead of buying Canadian stocks.
As usual, investors should stick with investing in well-valued stocks for long-term outperformance. Having a long-term view puts the odds in retail investors’ favour versus fund managers who are pressured to deliver market outperformance on an annual or even quarterly basis.
Canadians could also invest in quality Canadian stocks that are well valued if they already bought all the U.S. stocks they want currently. Just know that when the U.S. dollar strengthens against the Canadian dollar, Canadian investors would benefit from foreign exchange normalization as well as price appreciation from U.S. stocks bought at good valuations. If Canadians buy quality U.S. dividend stocks now, the dividend income will also increase on favourable foreign exchange normalization.
High inflation is already upon us. As BBC News reported, the U.S. saw consumer prices jump 4.2% in the past 12 months. Price surges for certain goods can be even more ridiculous. Second-hand car prices rose 10% in April versus March.
A part of that had to do with the shortage (and consequential price rise) in basic materials like steel. The situation is similar for other raw materials like copper and lumber.
The Federal Reserve aims for a long-term inflation rate of 2%, as does the Bank of Canada. The Federal Reserve explains very well here how a stable rate of 2% helps with keeping maximum employment and consumer price stability. It further clarifies that an extended period of low inflation is likely to lead to a period of higher inflation (triggered by monetary policy), which is what we’re seeing now in both countries.
At the very minimum, Americans and Canadians need to ensure their savings are earning at least 2% a year from interest income. Of course, we can do better than that with dividend stocks.