The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1909-02-23
NON An IDEAL INVESTMENT
Securities Of Public Service Corpo.
ratiOns Bring Safe Returns.
Safeguards Thrown Around Them
by State COmmissiOners. and
Earnings Are Stable.
By CHARLES LEE sCovIL.

Public utility corporations serve the
people in a variety % ways. They sup
ply light power. and transportation: az
ford a means OF communication over long
and short distances. and sometimes fur
nish heat for buildings and residences
All Of these are public necessities. And
yet. in practically all cases. befote a pub
lie utility corporation can commence bus
mess j. must secure the permission Of
the public. This permission takes the
form OF franchise. under The terms %
which a corporation has Tire wight 10
transact its business for = limited OF an
unlimited period. Il for a limited period,
the renewal o. the franchise n its ex-
piration becomes a matter Of negotiation
between the public and the corporations.
In some States. such es New York ard
Wisconsin. the legislatures have created
commissions and conferred upon them
certain powers vita regard 10 the regri-
lation and government Of public utility
corporations
These commissions are !n a position 70
render the public a most valuable serv-
ice, and 70 protect tue corporations
against fl-considered or improper attack.
There is perhaps no form 4 investment
calling for a greater degree CT discrimi-
nation upon the part Of Individual liz
.vestors than the security issues Of public
utility corporations. Generally speaking.
this type Of investment IS an ideal one
for persons who desire 10 secure Tie
greatest return upon their capital com
patible with safety, and who elect TO
include amosg their security holdings a
certain percent age Of inve 5tnlcnts whieh
do not command a quick maIker
IN the selection Of public utility bonds
there are numerous details which must
be carefully considered, and the average
person does not have. ordinarily. either
the time or the opportunity TO make these
exhaustive Investigations. Therefore, in
considering their purchase, II is necessary
10 RELY upon the experience and Tepu-
tation Of investment bankers. and il is
obvious that every preCaution should be
taken to transact the business only with
those firms having wide and successful
experience in the handling Of such invest
ments Many OF the banking houses max
ing q specially 0L HHU4lE AAAllLN DUlalS
have never undeTwritten an issue that
has defaulte6 either as 10 interest or
principal
II IS supremely important that a public
utility corporation should have under all
circumstances, honest and efficient man
agement. In some cases. the corporations
are controlled by holding companies. usu-
ally through ownership OF a majority Of
F,., a toe
may be located in different sections Of
the country, and may include street rail-
way. gas. and electric lighting and heat
and power companies. The holding com
panies ordinarily do not receive any re-
turn upon their investment until the
properties have been developed TO the
point where the payment Of dividends is
deemed conservative. Generally speaking,
public utility corporations under the sa-
pervision Of holding companies are IN a
strong position, in that the properties
have the benefit OF the most expert man
agement.
The earnings OF public utilities have
great stability. They-are less affected by
business depression. crop failures. &c.
than are those OF any other corporations
The proper maintenance Of public utility
properties Is Of great Importance. affect
ing not only the investor, but must in
sist upon permanency OF value for the
protection OF his money, but also the
comfort and convenience Of the public
Il is generally admitted that the plants
and equipment should be efficiently MAIN
tanned through the expenditure OF GER
tain proportion OF the gross earnings.
The corporations method Of financing
has an important bearing upon the invest
ment value Of public utility bonds For
example. II a corporation has outstanding
only a comparatively small bonded debt,
and its custom is to raise its additional
capital requirements through the sale OF
stock at par. the security behind the out
standing bonds is constantly enhancing
in value In connection with corporations
financed in this manner. It should be
borne IN mind that as the stockholders
are afforded no direct security for their
capital, IL IS reasonable for them 20 ex-
peet liberal returns upon their invest
ment.
The best type Of public utility bonds
are, Of course, the underlying liens. Some
times the underlying liens cover AL
property. real and personal. now owned or
hereafter to be acquired"