Evening star. [volume] (Washington, D.C.) 1854-1972, 1919-11-02
BY I. A. FLEMING.

BY 1. A. FLEMING.
It has been noticeable of late that
preferred stock issues have in
measure supplanted bonds as
means Of raising new capitalization.
Preferred stocks also seem to be
growing in favor with the invest
ment public and they are certainly
safer financing solely from a corpora
ton point of view than bond Issues.
If the corporation is safe and sane
and doing a good business perma-
nent well founded business-the pre-
ferred shareholders are sure to get
their dividends with reasonable reg
ularity. while the cumulative fea-
lures make 1t certain that cessation
for a period of some unusual hap
pentng simply means that the failure
will be made up and no loss sus-
tanned.
Investors in preferred shares should
look we'll into the financial status
Of the standing of the corporation
to know prior lien issues. notes or
bonds. Unrestricted issue of these
priority securities depreciate the
value of the preferred stock. and
where these priority liens do not
exist in large volume the preferred
issues have much safer position as
to investment.
Steel Preferred an Example.
There are millions Of bonds ahead
of the preferred stocks of the United
States Steel Corporation. but the
company has replaced from its profits.
sufficient of its earnings to practi-
consideration of the preferred share
holder and in addition established
assets that give to the preferred
stock the stability of bonds. as evil
denced by its steady, practically I'M
changed position during all the un-
easiness of the last decade.
This Is one of the very best il
Illustrations Of the investment value
OF preferred stocks, where the bond
issue Is provided for in an annual
sinking fund and where conserva-
tive management secures to the pre-
ferred shareholders their dividends.
with protection against priority liens.
Just as there are stocks and stocks.
some good and some bad. So too.
there are preferred stocks and pre-
ferred stocks.
Preferred as to Assets.
Preferred stocks. as a rule. are pre-
some-probably the majority-have
hxed cumulative dividend rates: other
issues have a certain fixed divid end
rate and share with the common stock
In all distribution over a certain
point Some issues of preferred stock
Frequently in the case of rights"
the preferred shareholder is barred
from participation. Often both COM
mon and preferred share and share
In all privileges
The granting of credit to a sub
sidiary corporation. the guaranteeing
OF bond issues of subsidiary. are
both hasarding preferred sharehold-
ers' equities. II the liens are not care
fully created and with a view of in
sured means.
No liens should be made without
approval by preferred shareholders.
usually IS per cent vote of approval
being necessary.
As a rule. on liquidation, the pre-
ferred shareholders usually receive a
set redemption price. plus accrued
dividends. before the common stock
holders are given consideration.
Equal Voting Power.
In the case of the Washington Rail-
way and Electric Company. the pre.
ierred shareholders are preferred as to
voting power with the common share
holders and they are more numerous,
for the reason that the preferred stock
issue - much larger than the COM
mon. reversing the usual rule
Of late 1t has become popular for
large corporations to issue a GER
tain amount Of preferred stock. high
grade, with sinking fund retirement
provisions. and then to double. treble
or even issue ten times the amount
OF their common stock without par
value-this usually being practiced
by some great corporation with enor-
nous assets and Of such a high price
that general trading in it il otherwise
restricted. as in the case of Columbia
Graphophone common.
Preferred shares may have many
Advantages for careful investors, also
they may have their disadvantages.
Bonds take the precedence over all
kinds Of stocks-bonds are a debt of
the corporation: stocks indicate part
nership interest. and the ultra con-
where the liens ahead of the preferred
stock are not heavy enough to alb
sorb the earnings and where the divi-
dends are earned times over.
Do Not Go It BlinI.
The laymen considering the wisdom
Of making an investment, whether II
be in bonds. common or preferred
stock. curb or runnipg-wild and list
which they may solve the problems
that are always reasonably under
stood by the profession.
The head of your bank by reason Of
his desire to give service will tell you
IL he knows of the security you are
interested in: legitimate stock brok-
ers. members Of the New York Stock
Exchange: the local stock exchange
or the Consolidated Stock Exchange
are at your service and the invest
ment bankers of Washington have
made a close study Of corporations
and their standing-they have to
know in their business-but get an
opinion from one of these parties and
do not act on your own judgment,
save when ready to take the conse-
quences.
The Gardiner Plan.
washington has experienced one day
Of 1-cent fares and four for a quarter,
and the chances are that there were
many who objected to the annoyance.
There are also many who think that
the plan Of Commissioner Gardiner
for increased rates on electric light
and the retention of the old scent
fare would be much less burdensome
on the citizen, especially il he is a
man of family.
1t has been estimated that 81 a
month added to the bills of consumers
of electric current would yield, at
the rate of 10 to IL cents kilowat
hour. $4,000 annually. practically
all that is needed to establish the
Washington Railway system on a fair
Company participates in the increased
faxea though not asking II