New-York tribune., 1918-05-06
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its will nor merely maintain its exist
ing business. 1t is forced continually
of the public and at an enormous rate
of growth, particularly in present
times. The annual new capital require
ments are many times the total net
the earnings cannot be used to finance
the growth, nor can money be diverted
for this purpose from the payment Of
dividends
The element of risk in the invest
ment in public utility shares should be
practically eliminated. Ordinary bust
ness enterprises succeed or fail ac-
cording to their character and the de-
mand for their products, and wise in
vcstors continue to invest only in those
which appear to offer the best pros
poets Of success. The public utility, on
the other hand, cannot be permitted to
rise or fall with fluctuations or
changes in the opinion Of the investing
public in regard to its chances of sue
cess or the risk involved Public utili-
ties must continue in business and
must continue to expand. and conse-
quently must readily secure additional
money. This involves the absolute ne
cessity for financial success and sub
stantial profits.
There is nothing of greater practical
Importance in assuring good and ade-
quate service to the public than the
maintenance of regularity in the divi-
dcnd rate paid by utility.to its share
holders. In the past it has been q
practice to regard shareholders as
standing in substantially the relation
ship of partners in business. They
were supposed to be familiar with the
status and fluctuations Of the business
and were expected to share in its ups
and downs. But the corporation which
has shareholders who are not active in
the business or familiar with it is in
different situation, and this applies
with particular force to the great pub
lie utility corporations that number
their shareholders in the thousands
and tens of thousands.
The great majority Of the share
holders in such corporations have only
the barest information as to the man
ner in which the business is handled
and as to the results that are being
achieved, and are not sufficiently IA
miliar with the business or sufficiently
interested in it to absorb more de-
tailed information. even if it were
given to them. They regard their
ownership of public utility stock
purely as an investment Of capital that
will bring them an income. They buy
as they would have in buying a real
estate mortgage, the only purpose be-
ing that of securing dependable in
come with a chance Of profit The OBJ
ject that is actually in their minds in
making the purchase is not a partner
ship interest in going enterprise, but
the acquisition Of certain certificates
of stock, which, at regular intervals,
will bring them dividend checks.
To shareholders of this type regu-
larity in their dividend returns is Of
the greatest Importance They count
upon these returns as fixed portion
of their income Indeed, in thousands
Of instances the living expenses of
dependents are provided out of these
dividends. In this present war time
these dividends are being already sub
stantially reduced by Federal income
taxes and made to bear their part Of
the burden imposed by the war. Fur
ther than this, the purchasing power
of all money has greatly decreased un-
der existing conditions, which, in it.
self, is equivalent to a decrease in
dividend rate.
The dcsirability of maintaining reg
ularity of dividend rates rests not
merely upon the duty Of the corpora
tion to it's shareholders, but also upon
a substantial advantage for the COR
poraton itself. by reason Of the fact
that shares which yield regular divi-
dends are in far greater demand by
owners of capital who are not engaged
in active business or who are invest
ing their hard-won savings than those
shares which are paying irregular
dividends, however large these latter
NAV sometimes be
Out of two stock issues, otherwise
equivalent, one of which is paying a
permanent dividend rate, year after
year. and the other of which is paying
dividends irregularly but averaging at
least as high as the regular payer, the
former issue will always sell at q
substantially higher. price. For this
reason the corporation which has sue
ceeded over a period of years in main
tanning record Of dividend stability
and which has not changed and is not
likely to change its dividend, except
to raise it to a permanently higher
level, enjoys The benefit Of a credit
and of consequent demand for it's
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