Evening star., 1936-01-05
NEW YEAR BRINGS
COMPLEXPROBLEM.
OF RE|NvESTMENT.
More Money Is Disbursed
in January Than for Any
Other Month.
1885 DIVIDENDS HIT
BEST MARK SINCE 1881
Many Bondholders Cast Their Lot
With Stocks as Refundings
Cut Incomes.
BY CHARLES F. SPEARE.


Special Dispatch to The Star.
NEW YORK. January 4.-In nor
NAL business year, more money Is dis
bursed. in January, In the form Of divi-
dend checks, interest on bonds and on
savings bank deposits, than in any
other month. In periods OF great
the amount Of this incre-
ment on capital has aggregated $780,
100000. Its employment in the in
vestment market has made for active
buying of securities. both before the
income became available in December
and on its receipt after the turn of
the year. Necessity, however, has COM
PEELED the use of it for living expenses
since 1929 So there has been slight
evidence of it in the last five years
as a factor in what has come to be
known as the January reinvestment
demand"
With the recovery in industry divi-
dends in 1885 reached the high dollar
total since 1881. The gain over 1884
was about 10 per cent. However this
increase has been progressive. In De-
cember for instance disbursements to
holders of American corporation
stocks were Is per cent greater than
in the same month of the previous
year reaching s343.00o, ,00o There is
every reason to expect that this ten
dency will continue.
The change in the interest account
has been small since 1929 compared
with that in dividends. The number
of payments on corporation bonds has
remained fairly constant, the excep-
tion being in the railroad list, where
defaults have risen. It has decreased,
however, in the real estate mortgage
field, though showing an improvement
here in 1885 over the three preceding
years. The same trend is witnessed
in the municipal bond group.
Interest Income Cut.
But, while more debtors have been
able to pay part or all of their fixed
charges. the direction of interest rates.
as a whole, has been downward.
Consequently. the incomes of those
who have invested 100 per cent in
secured issues has diminished. Fur
thermore, the vast sum of money rep
resented by savings bank or time de-
posits is earning only about half the
average of 1882. for 2 per cent Is to-
day the universal rate Of interest,
compared with from 31a to 4 per cent
for considerable period subsequent
to December, 1929.
The advantage taken by borrowers,
from the Government and municipali--
ties down to public utilities, industrial
companies and a few railroads, to
retire high coupon bonds and replace
them with lower coupon issues. and
the forced or voluntary reduction Of
interest on real estate loans, has cut
deeply into the income of institutions
and private investors. The owner of
s50,000 of securities of these varied
types, who was realizing an annual
return of $2,50o in 1888 and part of
1884, has frequently seen his earnings
on the same list shaved to between
81, 900 and $1,750. At the same time
his ordinary expenses have materially
increased.
The problem of investment, there
fore, has become a serious one both
for the possessor of free capital and
his agent. 1t is the more complex
when the proportion of unearned in
is, income from stocks,
bonds, mortgages or deposits-to total
income, Is high. There Is a consider
able RENTER. class in the United
States. Its present difficulties are not
the least OF those for which the
country must find escape. 1t Is no
secret that the generous dividend
policy of the American Telephone g.
Telegraph Co.. during the years when
this dividend has partially been
has been somewhat motivated
by the responsibility felt by its man
agement for its 65o,000 shareholders,
many Of whom are entirely dependent
for their material welfare on the
quarterly payments on this stock.
Many Turn to Equities.
Not q few of those whose interest
has been. steadily declining, as one
operation has followed an
other, have cast their lot with the
equity" investor class. They have
looked to an appreciation in their
capital to compensate them for the
loss in their income from interest. In
many instances this has worked salts
It has required only a
small advance in an active stock to
equal the annual coupon payment on
= per cent bond. Then again,
holders of high-grade bonds, called
and replaced by 3la per cent issues,
nave taken their cash and placed it
IN bonds of q lower grade in order to
squalize the former return on capital.
In both instances the investor has
.aken q step backward. His invest
ment philosophy has undergone
radical adjustment to the new condi.
ions facing him.
Is there an alternative? This ques-
ion also perplexes the bank with ex-
less reserves and the insurance COM
oany with heavy inflow Of premium
money for which it cannot find re-
employment.
Unless he Is willing to accept the
going rate of return on prime invest
nents and on time money, or Is will
ng. for a season, to freeze" his
capital, there Is nothing much that
he individual can do other than he is
now doing. But he must realize the
,isk of his departure from secured
70 an Equity" position.
On the side of the institution which
1as accepted the lower return on in-
when it has been willing to
invest and to multiply its holdings Of
and municipals, as well
Is public utilities of the highest grade.
! reasonable alternative might be
'reer use Of idle capital In promotion
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