New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1913-02-01
BORROWING FOR DIVIDENDS.

The plan to pay off accumulated
preferred dividends of the American
Can Company by borrowing money
which was announced Yesterday rs the
elimination Of the sensational specula-
ton Of the last few days III the stocks
of that corporation. is. we doubt not,
pnrfccflv legal under the lax laws OF
New Jersey. where the company is
chartered. Doubtless also many able
and honorable men Will consider the
arrangement one Of sound finance and
good morals. Nevertheless, IL j. the
sort of transaction which tends To
create prejudice against the methods
of American business. The man In the
street cannot get away from the notion
that dividends are q distribution oi
surplus profits ana nothing else, and
that there is something Objectionable
in issuing interest bearing bonds 10 be
cared for I'm the future in order 10 pay
promised dividends which the business
has not earned. This simple minded
man may be unable 10 grasp the COM
pick reasoning of more sophisticated
tinanciers. but his views and even his
prciudices are important factors In
the present standing and future oppor-
tunities OF large corporate enterprises.
The arguments in favor OF this bond
issue are apparent. Back dividends on
the cumulative preferred stock amount
10 800, per cent. Al the present rate
Of earnings It would be years before
these could he paid 50 that anything
could go to the common stock. BY Dor
rowing S1J.OOO.OOO they could be paid
off at once. and after the interest of
$40. 900 on these bonds had been met
each wear the common stock holders
might hope for something. II may be
said that earnings which ought TO have
gone toward this preferred dividend
were turned into betterments. for which
money might have been borrowed be-
fore and that the bond issue has simply
been deferred. The common stock hold
ers may be glad to assume $4,000 a
year interest charge in order to bring
dividends in sight, despite the the
oretical objection to loading up the
property with such a fixed charge and
continuing capital liability for the sake
Of paying dividends which are not de-
rived from surplus earnings. Unless
this is done they face a long period Of
no returns, and they may argue that
this is the best way out Of difficulty
due to unfortunate original commit
ments in the issue Of cumulative stock.
Perhaps this is true. But il only
drives us back one step further in the
study Of corporation methods. Over
Capitalization may he .useful--tO pro-
m0ters Overlibcral guarantees in
the way of cumulative dividends may
make market for securities; but
they are likely to come back TO plague
the business involved. The elaborate
devices by which one class OF stock
after another and one sort Of bond
after another are made 10 serve
other purposes than the straightfor-
ward financing Of company's business
are carried 10 dangerous extremes.
Students of corporation law might
prOftably give more attention to this
phase Of the subject. 1t is. we realize.
complicated question. and we have no
panacea to offer. but II some simpler
methods could be made TO prevail by
which. without discouraging what may
be called the special partners in an
enterprise. corporation financing could