Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-11-20
RAIL BOND LOSSES
HAVE BEEN LARGE
Reductions and Omissions of
Dividends Have Affected
Many Securities. E
BY CHARLES =. sPEAnE.

OAhAASAE1S OF EhASDs
Special Dispatch to The Star.
NEW YORK, November 20-The
holder of American railroad stocks
views with deep interest the negotia-
lions which began yesterday between
representatives of railroad capital and
railroad labor in an effort to come to
an understanding on the future of rail-
road wages. He is somewhat she'll
shocked at the rapidity and the extent
to which the return on his invest
ments in railroad securities have been
falling in the past six months and is
alarmed over the outlook for the in
come from this source as the momen-
tum of dividend reductions and omis-
sions suddenly increases
An analysis of the changes in the
dividend status of 25 railroads shows
that with those that have recently
been ordered the decrease in the
amount, compared with year ago, ap-
proximateS $150,000, 000 This is more
than shippers will be asked to pay If
the proposal of the Interstate Com
merce Commission under the pooling
plan goes into effect. 1t is equivalent
to about per cent on the existing
pay roll of all American railroads. It
amounts to about 80 per cent of the
total of all dividends declared and
paid on American railroad stocks in
1890.
Further Adjustments.
That it will be even larger than
$150.000 900 is evident. in view of adj
juStments Of dividends to earnings in
the last quarter of 1881 likely to be
made by the directors of a number of
important railroads before the end of
the year. From present indications it
is not improbable that railroad divi-
dends in the first half of 1892 will be
at about the same rate as those de-
clared and paid in the years 1922 and
1923.
Under such circumstances the holder
of American railroad stocks feels that
he has taken substantial cut in his
wages on the railroad capital invest
mentS and that therefore, concessions
should be made by that portion Of
railroad labor receiving the same basic
rates of pay when net operating in
come of the carriers is about so per
cent lower as it did in 1929.
There are now only three large rail-
road systems in the country that are
holding to the same dividend rate on
their common or capital stocks as had
been paid by them over a period of
years. These are the Atchison. Union
Pacific and Burlington. The Missouri
Pacific has retained the per cent
dividend on its preferred stock. Two
of the smaller systems in the East, the
Delaware & Hudson and the Bangor &
Aroostook, have been able to maintain
the previous dividend status. Nearly
half of the Is roads reviewed have
passed dividends on common stocks, and
three of them, the Chicago & North ?
western, New York, Chicago & st.
z av,I
payments on both common and pre-
ferred issues. 1t is expected that the
st. Louis-San Francisco will shortly be
in the same class.
Effect Of Reductions.
The effect of the reduction or omis-
sion of railroad dividends is not limited
to the income of railroad stockholders.
1t has had close relation to the de-
cline that has taken place in recent
months in the junior bonds of systems
whose earnings have compelled policy
of eeonomizing in order to protect their
fixed obligations. This effect is linz
tied to a depreciation in the market
value of bonds, for there have been no
defaults among any of the roads that
have reduced or omitted their divi-
dends.
Examples OF the bearing Of dividend
changes on junior bond issues are the.
decline of IS points in the New York
Central AVS since this issue was
brought out last Spring, of nearly the
same amount in the Pennsylvania Rail-
road 414s which were sold at the same
time, of 50 points in Chicago & North
western 434s, of SO points in Illinois
Central 42zs, 20 points in Louisville q
Nashville SIS, about Is points IN South
ern Railway SIS, 81 points in Great
Northern IS, % points in North Pacific
6s SO points in Frisco 4ias, 35 points in
Rock Island 415s and about % points
IN Observation-Disclosures IS.
Recent Issues.
A majority of these bonds are Of
comparatively recent creation. The
New York Central 412s were sold just
before the dividend on the stock was
reduced from per cent to per cent,
and the Pennsylvania 4Hs when this
stock was paying 8 per cent. The
Northwestern 434s were brought out in
1929 at par as a medium for financing
which was eventually to be done by
stock.
The Frisco AIS and the Rock Island
412S came when the enc road was pay
ing per cent on its common and the
other per cent Illinois Central sold
AZ per cent bonds when its per
cent dividend seemed reasonably GER
tain to have a permanent status. It
was the fact that all of these roads we're
paying dividends on their common
stocks at substantial rates that prompt
ed the investment of individuals and
institutions in their new junior bond
issues. Fortunately. the latter seem to
have about discounted the effect of the
change in their rating which has come
about through the elimination of divi-
dendS on stocks,