Evening star., 1932-03-25
PENNSY IS FACING
DIVIDEND PROBLEM
Directors Must Decide on
Policy at Meeting Next
Month.
BY CHARLES f. SPEARE.

4 ISpoNiai Dlspatcn 10 The star.
NEW YORK, March 25,-An unusual
set OF circumstances will confront the
directors of the Pennsylvania Railroad
Wnen they meet next month to con-
Slder the quarterly dividend normally
due to be paid at the end of May
Ihey will be faced not only with the
question of how far they can use the
earnings of the system in behalf of
thelr shareholders, at a time when re-
SUITS from operations are unfavorable,
put must decide whether to abandon
dividends and interrupt a record of
payment going back to 1847 in order to
meet the implied requirements of the
Reconstruction Finance Corporation for
loan of 100000 to complete the
electrification of the New York Wash
lngton lines.
Dividend Policy Involved.
Involved in this situation Is policy
OF continuing dividends after paying a
considerable portion of the 1881 rate
from surplus, when 1925 a share was
dsbursed against earnings of $149 a
snare, or of abandoning payments af-
fectmg 245,000 stockholders, of whom
high percentage are women, In favor
OF a development program that will
give employment to many thousands
OF workers directly engaged in construc-
tlon or in the manufacture of materials.
The Pennsylvania Railroad, SO far
as is known, has no pressing bank
loans. In this respect it is in a stronger
position than competing lines. It's
financial needs, for which it has ap-
piled to the Reconstruction Finance
Corporation, relate entirely to work
well advanced and necessary to COM
plete in order to gain the advantage of
the money already expended on it. In
view of the present cost Of material
and labor, this can be done to greater
advantage than if the work is delayed
until 1t could be financed through the
usual channels of security issues The
balance sheet of the road on September
81, 1881, showed current assets about
double current liabilities. This also
Is In contrast with the position of other
systems in the Eastern territory.
1t is apparent that the Pennsylvania
directors may be moved by two contrary
impulses in determining their future
dividend policy. On the one hand,
there is strong sentiment in the board
to preserve the dividend record, main
tanned for 85 years and during which
over 81 100000 900 has been paid out to
shareholders. Against this is the claim
for conservatism at time when the
railroad outlook is unsatisfactory, even
though the net results so far this year
show an improvement over the same
period of 1881.
Railroad companies as rule possess
a much smaller proportion of cash and
marketable securities than do the
larger industrials and public utilities
At the end of 1880 the combined liquid
assets of American Telephone g. Tele-
graph, United States Steel and Gen
eral Motors were s766,000,000. This
backlog justifies them in continuing
payments to shareholders even though
full dividends may not be earned. On
the same date in 1880 the total cash ano
marketable securities of the strongest
transportation systems, namely, Union
Pacific, AtchiSon and Pennsylvania
were slightly under $115, ,0O9, 900. AS the
first three corporations witnessed de-
| crease ia 1881 in their liquid assets from
66000,O00 to 5000 100000, it is OBJ
vious that those of the carriers we're re-
duced in even higher ratio. Their fig
ures for last year are not yet available
The obligation of a corporation like
the Pennsylvania Railroad to its share
holders, many of who are people OF
| small means depending upon their in
| comes, is one that a board of directors
| has to consider carefully in these times
The stockholder looks with the eye Of
proprietorship to the surplus figures
shown in the balance sheet of a COM
pany in which he has an interest, no
realizing frequently that this does moi
reflect money in the bank, but Is chiefly
composed of items that are not available
| for bond interest or dividends on stocks
But the Pennsylvania Railroad has al
ready made sharp adjustment in it
dividend rate to the change in its net
operating income figures. 1t could still
afford to pay dividend on the basis Of
the 1881 earnings and the present out
look. In view of its clear position with
respect to borrowing and to the nature
of the loan requested, 1t is felt that the
Reconstruction Finance Corporation
would be pressing it unduly and injur-
ing too large a body of small investors
| If it insisted on complete elimination
of dividends as a sine qui non for g
loan. .a4ilA
Copyright. 1882.