Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-08-24
Some Groups Make Good Re-
coveries During the Week
as Shorts Retire.
CROP DAMAGE FACTOR
IN DELAYING UPSWING
Real Estate Mortgage Situation
Marked by Growing Number
of Defaults.
BY CHARLES F. sPEARE.
Special Dispatch to The Star.

cheerful the greater portion of the
week. 1t has been reflected in some
good recoveries and the regaining OF
fair percentage of the average de-
cline earlier in the month.
The quieter commodity markets, with
indications that the drought damage
has been apprehended to its maximum
extent, and nervousness in the camp
of the extended short interest, have
checked liquidation. Business reports
are better in some quarters, as in iron
and steel, but the story of industry and
retail trade generally is one of restricted
operations and hesitancy on the part
of consumers to buy more than i'm
mediate requirements compel. There
have been further dividend reductions
in recognition of these conditions as
well as of the fact that current earn
ings have not been covering quarterly
requirements.
Effect Of Crop Damage.
AS the end of the Summer season ap-
proaches 1t is evident that further de-
lay in the recovery of business has been
produced by the crop damage, which
has actually reduced the buying power
of large sections and given excuse for
| industry. The fact that money re-
mains at such q low rate is proof that
there has been less than seasonal i'm
provement. On the other hand con-
sumption in most lines Is now in ex-
cess of production, so stocks are stead
| lily being cut down and a potential de-
mand is being created that may exer-
else a quick and positive effect on bust
ness sentiment in the last quarter OF
the year.
factor in delaying progress and
contributing to the distress among such
a large number of small banks is the
real estate mortgage situation reflected
in foreclosures and defaults on a scale
seldom witnessed in this country. This
is sequel of period of extravagant
building. It has affected nearly every
| important metropolitan area in the
United States.
1t had taken the bond market long
time to recognize the fact of easy money
and to tune itself to this situation. II
may require an equally extended period
before common stocks reflect the differ
| ence between the ruling rates for cal
and time loans End the yields they re-
turn at going prices, Occasionally they
have shown symptoms of this. In gen.
eral, however, much OF the buying has
! been either for temporary profit, fol-
| lowing the numerous sharp declines ex-
| perienced in the past four months, OF
absorption wholly for the purpose OF
capital appreciation over q term OF
| years.
Difference in Returns.
The investor has a wide range Of Sc
| lection between the two groups OF
equities, the one selling at a low income
return, but strongly fortified by surplus
reserves and debated to a more normal
relation between earnings and price, and
| the other providing the accepted stand
ard return of per cent and from there
| entering the field where the speculative
chances are related to future dividend
| policies. This difference in return goes
| from a minimum of ~ to per cent
up to a maximum Of is per cent with
even higher yields on few shares
whose rates have already been adjusted
to a decline In gross corporation re-
| ceipts.
The situation with respect to invest
ment returns on common stocks may
best be indicated by listing some OF the
prominent New York Stock Exchange
shares that are included in the several
groups Of low, medium and high yields
on the basis of current quotations.
Group /. Stocks yielding per cent or
under. This comprises rs issues, such
as American Power g. Light, American
Water Works, General Electric and
| Standard Oil of New jersey
Group 2. Stocks yielding per cent
| and under. The number is Al 1t is
representative of the blue chip" issues
and those Influenced by possible .pur-
chaseS for control and includes Console
dated Gas, Eastman Kodak, Interna-
tional Harvester, Pacific Gas 81 Electric,
Southern California Edison, Public Serv-
| ice of New Jersey, Union Carbide &
Carbon TIninT1 Gac Tnanr0UnVOnant nio-
mond Match and Westinghouse Electric.
While the argument for their purchase
| is mainly that of their equity position
| they allow of fair net return over the
cost of money required to carry them.
Group 3. Stocks yielding 5 per cent
| and under. This is more comprehensive
| than the first two with nearly 100
members in it. Among them are Aneri-
can Telephone d Telegraph, Interna-
tional Telephone, which in 1929 sold on
| about 1.50 basis, American Tobacco,
Aitchison, Chesapeake g. Ohio, New
York Central, Norfolk g. Western, Union
Pacific, United States Steel and Wool
worth, as well as most of the old line
| industrial preferred shares. The ele-
ment of income return here is probably
as important with the purchaser as
| that of future appreciation for 1t rises
for the first time above that of high
grade bonds and savings bank interest.
| Group 4. Stocks yielding from to
| 534 per cent. This numbers rs and has
| in 1t many of the better grade public
utility per cent preferred stocks SELL
ing at / to 2 point premium over par.
1t also includes such common stocks as
Allis Chalmers, Canadian Pacific, Penn
| sylvania, New Haven, Southern Pacific
and Delaware &c Hudson. With the ex-
ception of Canadian Pacific present
dividends appear secure.
Group 5. Stocks yielding 534 to 6
per cent. Number IS. Again the pre-
ferred shares of public utilities make ur
the largest proportion of this list.
Group 6. Stocks yielding from 6 to
per cent. Total 100. We now enter ar
income zone essentially investment. The
average investor demands a yield of
per cent or better with safety" when
he is buying stocks. On bonds his mini
mum limit of return may be from 5 tt
5l2 per cent. Today he has a broad
field in which to make his selection. HI
must choose carefully for many of the
shares that meet his income require
ments are under the influence of pool
earnings, which, If continued, may leac
to revision of dividend rates and ac-
4 cordingly,' to that of return. In this
group are American Smelling & Re-
filming, Atlantic Coast Line, Baltimore
& Ohio, Great Northern, Gold Dust
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