The daily morning journal and courier., 1907-09-28
OUR CONTEMPORARIES.
Railroad Expansion and Dividends

AAAVHhSaOA sAAAu A4ANhuCMuSe
 (Sprlngheld Republican,
 Under ordinary circumstances the stock of railroad company paying eight per cent. dividends, and selling from 160 up, would improve in price on the offer of new stock at 125 to holders of the old That the New Fla ven company's stock should fall heavi- ly on such an offer as this, following d previous and extended depreciation, evidently reflects a peculiar situation either in relation to the road, or in- vestment conditions, or both The market interprets the matter in the light of the investment congestion, which makes bear argument of every
 issue of new securities that may ap- pear. This Is to an extent reasona- ble explanation, but 1t probably does not tell the whole truth. It falls to take into consideration a growing irn- precision that the New Haven company has been expanding too far and too fast in the multiplicity of directions it's management has lately been following.
 The ambition in a railroad for ex- paneion may be ever so desirable and ever so necessary for it's prominence in the transportation world, but 1t is usually fatal to security in the large profits Of a snug little monopolistic po- sitlon. From the consolidation of the New York and New Haven and the New Haven and Hartford roads in 1872 down to 1892 the road paid 10 per cent. dividends and practically stood still In physical magnitude. It's mile-' age of some 200 in the early '70s had Increased only to 265 in 1887, when, or about when, Charles P. Clark assumed
 be e pegod o ef rnanso0 s Ss Taea e within five years of the beginning the dividend rate fell to eight per cent. How much more vigorously the policy of expansion has been pursued under the presidency of Charles s. Mellen ev- cry one knows. 1t has extended from taking in practically all of the steam mileage of southern New England, and from tentative absorption of most of the northern New England mileage, to the inclusion of trolley systems, more steamboat lines electric light plants and so on. In the few years of Mir. Mellen's Napoleonic administration, the oompanys capital stock has nearly doubled, and with the new issue will have more than doubled. It's stock and debt liabilities together have much HlOTc lHdH uOuDlSus US earnings III the same time have Increased less than fifty per cent. This is a very heavy gain, to be sure and the new ventures of tho company in various directions, and great expenditures on productive Improvements, will further magnify the company's income to an indefinite extent; but 1t is rule in railroading, as in most other business affairs that income fails to keep pace beyond a certain point with the growth in mag nitude of operations, and especially is this true of a very rapid extension of operations. It is not exactly the econ omic law of diminishing returns which applies here, but 1t is something akin thereto, The Union Pacific offers about the only instance of an increased divi- dend rate following period of reach ing oue all around for everything val uable in sight, but there is no certain ty that the increased payments can be maintained. The stock market Is clear ly of the opinion that they cannot be. But 1t ia certainly true in the case of the New Haven company that it's ability to continue paying eight per cent. is pansion policy, and the fact is being recognized in speculative and invest- ment circles.
 What is further taught by present New Haven experience is that railroads are being subjected to a general pres- sure from the public for improved, as well as enlarged accommodations, which is fatal to the maintenance of di- vidend rates, on the great operating systems, very far above the general market price of capital How, then, is the Boslen and Albany likely to fare on an 3-4 per cent. rental, unless its owners are able to find a lessee com pany rich enough and willing to put into the property for it's due malnten- ance year by year considerable amount of money earned outside of the Albany road itself?