It is many months ago since I suggested, in emphasising
the investment merits of Edmundsons' Electricity Ordinary shares, that one day the board might see fit to capitalise part of the group's internal reserves and give shareholders a scrip bonus. Well, here it is, rather sooner than I expected and on a grand scale. This group's management, which is as progressive as any in the supply industry, had already embarked on a policy of consolidation before the McGowan Report which has merely had the effect of accelerating the board's programme. Recently some big changes have been made, the financial effect of which has been to release the reserves of the Western and the Urban subsidiaries. As a consequence, the parent company's total reserves have been raised to £2,567,530. The board has therefore decided to capitalise £2,250,000 of this amount by distributing one new Ordinary £4 share for every two now held.
This 5o per cent. scrip bonus, as the board explicitly points out, will not affect earning power, so that one should assume that the dividend on the larger capital will be reduced from 9 to 6 per cent. Investors may ask : What is the advantage of the bonus if one is not going to receive any more in the shape of dividend ? The answer is, I think, that the distribution of a large scrip bonus by the Edmundsons board is at least prima facie evidence that the dividend rate will be stepped up gradually as earnings expand.
Previous page
