Evening star., 1923-12-16
RAILROAD DIVIDEND
CUT CAUSES STIR
Northwestern's Action May
Be Due to Farm Depression
or Canal Competition.
EXPERTS VIEWS DIFFER
Local Conditions Temporary, But
Canal Freight Inroads Affect
Other Lines.
BY GEORGE T. HUGHES.

BY GEORGE T. HUGHES.
Special Dispatch 10 The star
NEW YORK. December IA week
of advancing prices in the security
markets suffered only one serious in
terruption. That was when the d-
rectors of the Chicago and North
western railway announced the re.
duction in the dividend on that roads
common stock
The immediate result was reaction.
in the shares Of all the northwestern
railroads and some heaviness even in
their bonds, reaction, however, not
shared by industrial stocks. The case
is of Importance not only as affecting
this particular road, but in it's bear
ing upon the general railway situa
tion. The Chicago and Northwestern
for many years was one of the
strongest and most prosperous of ali
American railroads. only once in the
past forty years has the common
stock paid as low dividend as the
one just established. The important
ties Of the Northwestern are typical
and how far they represent condl.
tions peculiar TO this Boad.
Experts Views Differ.
Upon this question opinions of eX-
perts are at variance. On the one
hand it is pointed out that the Chit
cago and Northwestern has increased
its expenses out of proportion TO the IN
crease in revenue. That might be due
to unfortunate local conditions. No
doubt this road. like others serving
the same territory, has felt the eI-
fects Of the depression in the farm
ing districts. In so far that Is the
case it is temporary. If the price OF
wheat is below the cost of produc-
tfon one of two things is certain to
happen. Either the price Will advance
or less wheat will be raised. SO II this
is the trouble time. is sure TO bring
a remedy.
Competition Vital Factor.
More important than these matters,
however, is the matter OF competition
from the Panama canal ana mere inc
Chicago and Northwestern is not the
only victim All the transcontinental
roads are feeling this competition, IN
varying degree. and feeling II more
arutely every month. The Northtrh
Pacific the Great Northern ana IN"
st Paul face the additional problem
of ovtrproduction of railroad iaci'-
ties for the trattlc available.
As far.as competition from the ran
anna canal is concerned. read)ustmshI
Of rates might help. although thdt -
not going to h" an easy solution VI
der present political conditions. Inc
uuint that investors in railroad Sc
cutities must constantly keep IN mlnn
is this. namely, that Just as "attI
seeks it's level so will traffic take the
route whether by land or sea which
is most profitable to the shipper. Nov
railroads move freight along h&ed
raths operation cannot be shlfted.
except to very SHght degree ~
meet varying conditions.
RaiIfoad Bond Situation.
the motor truck so annoying 4 rival
of the eastern roads serving denSeiy
populated regions. If one route is un-
profitable the truck easily moves on TO
another. The railroad has no such
choice.
One corollary to all this is Of interest
to the holder of railroad bonds. 1t IS
"a tradition Of the investment markets
that underlying mortgages. Obligations
Of prosperous roads, are the most con-
servative OF investments. These un-
deriving mortgages are generally Sc
cured upon comparatively snaH por-
tiOnS of the mileage of the system IN
question. Many Of them are liens on
branch lines and take their rating from
the credit OF the parent company.
1t is perfectly possible that some OF
these ratings would be revised If a
careful examination were to be made of
the relative Importance of these branch
lines. present and prospective. and that
it would be found that junior. liens on
the system as Il whole were In the
stronger position.
Motor Car Competition.
1t has been the disposition all along
to explain the lack of speculative in
terest in railroad securities by the fear
of adverse LegislativeS action. It may
we'll be that in a vague sort of way, the
market has been rejecting realization
of these more fundamental factors af-
fectins the future of the railroads. That
is certainly the case with the public
utilities These, too, are subject TO
fixed regulation, in the public interest.
but their securities are not adversely
influenced on that account
The apparent exception of the trac-.
tions is not an exception. The electric
railroad is unable, save in Il few iso
lated instances, to meet the conpeti-
tion of the motor car, the privately
owned passenger automobile, just As
much as the jitney bus. The favor aC
corded to electric light and power bonds
and stocks is due to the steadily eX-
panding demand for the product these
companies have to sell. Concern over
political interference is practically
negligible.
other Issues Stronger.
1t is significant that this furry over
the railroad situation was without ma
terial affect upon the general security
market of the week. The advance in
industrial stocks which has been in
progress for. the past six weeks has
been continued Whether il Is justi-
fed by the business situation is
question only the future can answer. All