Evening star., 1925-03-29
H|GHL|GHTS NOTED
| IN BOND SITUATION
Decline Has Gone Far
Enough to Revive Invest
ment Interest Issues.
RY GEORGE II. HUGHES.

Special Dispatch to The Star.
NEW YORK, March 2S.-In view OF
the weeks severe reaction in Sc
curities, most marked in stocks, but
which has not spared bonds. some re-
examination of the situation may be
helpful.
The first thing to be said is that
the decline has gone far enough to
re-establish an investment interest,"
which was lacking while prices were
being bid up to record levels with
little or no discrimination. The point
can best be illustrated by the diVi-
dend- paying railroad stocks.
A speculator considers exclusively
the possibilities of price appreciation
when he. buys. He is uninterested in
the dividend rate his security pays.
The investor. on the other hand.
wants first of all income and then
price stability in his holdings.
Recent Average Yields.
Take a seasoned dividend paying
railroad common stock, for example.
If the dividend rate is I per cent, as
II is with many of these stocks, the
price must be around ll6 to pay 6
per cent on the investment. Still
considering the subject entirely from
the standpoint of the investor, at
least 8 per cent ought to be obtain
able in stock ownership if prices are
to be in line with those for bonds,
where, of course, the risk is much
less.
Now the average yield on a selected
list of dividend paying railroad stocks
on March 10 was 5.64 per cent, or
we'll below the 6 per cent level. At
about the same time Is high grade
railroad bonds were selling to yield
around +.75 per cent. Since that time
this spread has materially widened
TO the advantage of the genuine in
Vestment buyer who enters the mar
ket now This is what is meant
by the assertion that an investment
interest is now being attracted to
stock ownership.
Risk Element Always Present.
So far it has been assumed that
the fundamental situation with re-
gard to railroad traffic and earnings
and the maintenance of dividend
rates is unchanged. There is, of
course, never any certainty that such
an assumption is correct. This is the
risk inherent in stock ownership, and
cannot be avoided. The second point,
then, is to consider what is the out
look for stability of railroad earn
ings.
1t must be admitted that February
earnings make a diScouraging COM
parison with those of d year ago, but
February, 1924. was an exceptionally
good month for the carriers, and the
comparison is not entirely fair. 1t
will be more enlightening if the pro-
spective investor compares February
earnings this year with those of two
and three years ago.
Canal Factor Not New.
Next, weigh the Importance of
the Pan-American Canal competition,
about which so much is being said
just now in speculative circles. This
competition is one of the reasons as
signed in the official statement for
the troubles of the st. Paul, and it
was pointed out in this CORES pond
ence a week ago that the st. Paul is
not the only railroad that had been
hurt by loss of traffic to the big
ditch,' as the railroad men call the
canal But this competition has been
going on for a long while, and it is
no worse today than it was three
months ago, when railroad stocks
were at their high points.
Auto Competition Growing.
The situation is little different
with respect to automobile competi-
tion, which is another one of the
causes assigned for the st. Paurs
difficulties. Apparently losses from
this source are increasing. At least
it is suggestive that for January,
while freight revenues of class l
roads showed a gain of > per cent
over the same month in 1924, pas
senger receipts declined 3.3 per cent.
The important thing, however, is net
income, and it makes no difference
whether it comes from freight or
passenger traffic, provided it is
adequate to cover charges. dividends
and show a satisfactory addition to
surplus.
Outlook Much Confused.
What has been said with regard
TO railroad stocks applies to railroad
junior bonds and to u less degree to
industrial stocks and bonds, although
it must be admitted that here the
outlook is very confused. But it is
a matter of financial history that the
number of stockholders in Americas
greatest industrial corporation in
variably increases as the price of the
stock goes lower in the market and
decreases when the reverse move
ment in quotations is in progress. 1t
does somehow look as though the
small investor has a wisdom in these
matters much deeper than he is gen.
orally given credit for.