Every evening, Wilmington daily commercial., 1922-12-11

A stock dividend Il usually q
preparatory step TO q larger dis
tribution Of earnings in the future,
The distribution, however, may not
begin at once. Sometimes the rate
of cash dividends 10 reduced. so
that the amount of money received
by the stockholders 10 no greater
than before the new stock was Is
sued. Whenever the actual distri-
button of earnings to stockholders
begins the payments are taxed un-
der the present law. Il looks like
an excess of zeal to insist upon
taxing . preliminary arrangement.
Not Stock Watering
The issuance of new stock by the
conversion of surplus is sometimes
called watering" the stock, but
this il not according TO the COM
mon and opprobrious meaning OF
the term. II is true that the value
Of the outstanding stock is reduced
to correspond with the increased.
issue, but il is not fxuc that the
new stock has nothing behind il.
IL paid for from accumulated earn
ings which stockholders have alb
stained from Withdrawing from tho
treasury il is as fully covered as
the stock issued against payments
into the treasury.
The Motive
II the new stock issues transfer
no values. represent no values that
did not exist before, and give no
claims to dividends that might not
be paid upon the old stock. why
are they issued and why do stocks
advance on the market upon ru-
mors that stock dividends will be
declared?
One reason Is that an announce
ment of stock dividend is usually
accepted as signifying that the
company is IN position TO increase
its regular distribution TO stock
holders, and news of that kind is
usually pleasing. The public. as a
rule. does not enjoy waiting for
benefits, and the fact that a COM
pany is earning II per cent divi-
bends, but paying only 8. retaining
6 for charging the business, does
not make as good an impression
as the announcement that hence
forth il will pay II. II is the same
impatiencc which causes some leg
islators to insist upon the payment
Of II instead of o under the same
circumstances, in order that the
stockholders may have to pay
higher taxes. The sagacious stock
| holder will reflect that the retcn-
| ton OF the 6 per cent for the en-
| largemcnt OF the business means
larger earnings and dividends in
the future. and the ssgacious legis-
lator Will reflect that by the same
logic !, means larger revenues "a
the public treasury in the future
but impatient stockholders and
impatient legislators alike cannot
bear TO wait. II is the same ole
impotence that always has i'm
PEELED people to eat the seed corr
rather than plant II in the ground
| A stock that ha, a high surplu,
value but IS paying relatively
low dividend will not as rul,
have as a high a market value a.
one that has low surplus value
but is paying a relatively high divi
dend. In other words, the inolina
ton of the public 10 rate immediate
realization relatively higher thai
future realization tcnds 10 max
stock. rise on Interpretation O
increased distribution.
Moreover, a stock with a hig
surplus value becomes unattrac
tive to many possible buyers be
cause the price looks so high, an
they are able TO buy but fe'
shares. One Of the old banks c
New York followed for many Scar
the policy of allowing earnings {
accumulate until its shares becam
worth about $500 each. OF cours
such a value is not favorable TO
wide distribution of the stock. Tn
book value of the capital stock {
the Ford Motor Company, acsorC
ing 10 its statement of June 3
1922, was about Sl.7S0 for eac
500 share. If the present owner
should think il desirable TO invi'
the public to participate, no doul
that would be best. accomplish
by issuing more shares against Il
accumulated surplus, thus redu
ing the value per share. One (
the reasons given by the Standai