Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-10-02
BEST INVESTMENTS
PROVE PERPLEX|NG
High Prices of Stocks and
Bonds Turn Buyers to
Present Returns.
BY GEORGE T. HUGHES.
cial Dispatch to The Star.


Special Dispatch to The Star.
NEW YORK, October 1.-Today's
interest and dividend disbursements
are the largest on record for the third
quarter The two most important
paying dates are July / and January
!. Next to these two rank April l
and October /. 1t is striking testi-
mony to the widespread prosperity
that this year for the first time Octo-
Der dividend checks mailed will APP
proXimate $490,000.000.
OF this huge sum, by far the largest
part is interest on bonds. Attention
has been so conferred ON the perform
anceS of the stock market that the
average investor is likely to forget the
predominant role that bonds take in
the investment world. Roughly, the
proportion stockholders receive today
is 100000, 900 while bond holders will
get $370, 000,0 900.
Now this money so disbursed must
be reinvested. 1t will not long be idle.
The question is how this reinvestment
shall be apportioned. Presumably the
division will be made according to
the relative attractiveness Of the two
markets. that for bonds and that for
stocks.
Merit Decides Investments.
Both these markets are at the high
est in a decade, or. measured by the
averages at the highest for all time.
Whether or not the bond market is
absolutely at it's peak, or whether the
stock market is atan unprecedented
level, is unimportant. Both are very
high and investors are confronted
with a difficult problem. No one
wants to buy stocks for permanent
1. L
find himself faced with a serious
capital loss.
No one wants to buy stocks when
there is any doubt about the perma-
nency of present dividend rates. On
the other hand no one wants to take
bonds if thereby he sacrifices income
without gaining corresponding safety.
One other factor enters in. The stock
holder with an equity in the business
has a chance of gain as we'll as loss.
both in larger degrees than the bond
holCer. who is a creditor only. This
consideration is the determining one
with many investors.
Now let us make some comparisons
on the basis of this weeks quotations.
u. S. Steel at $50 yields Al per cent.
u. S. Steel sinking fund SIS at 100
yield 4.5 per cent. Allied Chemicals
at 100 yields 3.S per cent. General
Electric debenture, 3las of 1898 yield
Al per cent. New York Central at
1913 yields 4.76 per cent. American
Smelling and Refining SIS at 102 yield
as per cent. AS far as return goes,
the advantage is all with taking the
bonds, at least in these instances.
Other Striking Yields.
However. a better showing can be
made with other stocks. Eastman
Kodak at Ill yields 4.6S per cent.
Atchison General Is at So yield Ais
per cent. Atchison stock at 100 yields
5.26 per cent. Reading General 41zs
at 101 yield AIS per cent.
Anyone can multiply these compari-
sons at his convenience, and while he
will find high grade stocks which still
give better than 5 per cent they will
be practically all railroad shares and
the margin of advantage over cor
responding bonds will not be great. In
other words there is little reason for
an investor who is concerned about
his annual income more than about
increasing his capital taking stocks in.
stead of bonds.
Leaving the industrials out of con-
sideration for the moment, the pur-
chaser of railroad shares for invest
ment has something else to take into
was the most prosperous in any recent
history of the carrier. This year has
fallen much behind. Prices of rail-
road stocks are higher but aggregate
net income is not. Secondly the rail-
roads have had a long period of fire..
dom from political attack. The trans
portation act has worked out all to
their advantage. There is no assur.
ance that this happy state of affairs
will continue Indefinitely and if it
does not railroad stocks will lose some
of their present high investment
status. More or lie: the same pos
sibilities affect bonds, but not to any
such extent.
Some Perplexing Factors.
The investor who favors industrial
stocks is not without his perplexities
either. Take the steel trade for ex-
ample. Productive capacity is in ex.
cess of domestic demand and foreign
competition for outside markets is in.
tense. For that matter competition
at home is severe in many lines, one
of which is the motor car. A better
case can be made out for the public
utilities but going back to the matter
of relative yields it will be found that
utility stocks give the smallest return
of any one group entitled to invest
ment consideration.
The conclusion is that not at any
time since the World War has the
stock market so narrowed the differ.
ences between it and the bond market
as at the present time. 1t must be
admitted that the average individual
investor does not seem to have accom-
plished this deduction so far. He is
still enamored of stocks, and leaves
the bonds to financial institutions, but
the time is fast approaching when he
will take another view-and in invest
ment, as in speculation 1t is generally
wise to be little in advance of the
crowd.
Copyright. 1927