WISE INVESTMENT

HAD it not been for the counter-attraction of a spectacular business recovery in the United States, attractively mirrored in the steeply rising curve of common stock quotations on Wall Street's big board," I imagine that Canadian invest- ments would have commanded quite a considerable following in London in recent months. As things are, investors here are only just beginning to realise that Canada is emerging rapidly from her financial and business troubles.

All the accepted business barometers record marked improvements in Canada's position last year. The average of manufacturing employment rose by 6.6 per cent. ; mineral piodnetion by 12 per cent. ; steel output by 20.8 per cent. ; and pig-iron production by 15 per cent. Commodity prices, which hesitated until September, rose sharply in the final qUarter. Exports for the first eleven months were 22 per cent. higher, and imports 14 per cent. higher than in 1935. Freight handled by the railways was roughly 5 per cent. larger, and the official index of manufacturing activity rose frinn 96 to 129. These are impressive figures, from which Ithink one may safely conclude that the recovery movement in Canada has now got well under way.

CANADIAN NEWSPRINT SHARES From the investors' point of view, the remarkable change in the newsprint industry, one of the mainstays of Canada's production, opens up an interesting field. Most of the companies, which were severely hit by the depression, are carrying through drastic reorganisation schemes, but their position and prospects are immensely improved. A large recovery in output is being balanced by an equally large growth of consumption, and selling prices, which were increased last year, have been raised again for 1937. As a consequence, newsprint companies are able once again to make profits.

At this stage of recovery I do not advise a purchase of the cemmon stocks, but some of the prior charge issues are worth a place in a well-spread portfolio. Consolidated Paper 5} per cent. bonds, standing at 80, are perhaps the best value. Under the reorganisation plan just approved, no interest will be paid for three years, but bondholders will receive 11 common shares per 100 dollar bond as compensation. Ai the common shares can be sold in the market at 12 dollars each, a buyer of the bonds can obtain 18 dollars, or 6 dollars a` year, free of tax, which he may regard as a satisfactory income.

Abitibi 5 per cent. bonds, quoted at 90, are also attractive, carrying 25 points of interest arrears, and so are Price Brothers 100 dollar preferred shares, standing around 112. If, as I .„ believe to be virtually certain,' the reorganisation plan proposed by London interests goes through, the rate of interest on Price Brothers preferred will be reduced from 6f to 5f per cent., but the outstanding dividend arrears will be satisfied •_ by the allotment of If common shares, now quoted at 28 dollars each. In other words, a buyer can acquire for 112 dollars -100 dollars 51 per cent. preferred share with every chance of getting its dividend, apart from receiving common shares with a current market value of roughly 49 dollars.* At the net buying price of M dollars, the indicated yield is over 84 per cent.

* • PREFERENCE SHARES WITH ARREARS

It is usually Worth while to investigate the companies which resume payment of Preference dividends after a depression period. The bold speculator takes a rapid glance at the prospects of the ordinary shares, but the more cautious - investor who, while impressed by the recovery chances, is not anxious to run big risks, can often find a suitable • opportunity in the preference issues themselves. Here is a group of shares in this category :

Current Yield on Net arrears Price Regular per share Dividend English Electric 61 p.c.

Cumulative £1 Pref. .. 26s. Od. .. 5 p.e. .. Is. 3d. Goode, Durrant 7 p.c. Cum- ulative £1 Pref. 21's. 6d. • • p.c. .. as. New Zealand Loan & Mer-

cantile Agency 5 p.c. Cum-

ulative £100 Pref. stock . . £95 • • 51 p.c. - • £12 Scottish Stockholders 53 p.c.

Cumulative £100 Pref.

sleek £91 .. a p.c. £12

All four companies have recently resumed preference dividends. English Electric has paid, two-years' arrears.. Goode, Dturrant and Murray, an Australian merchanting company, and the New Zealand Loan and Mercantile Agency, both of which are benefiting from the effects of the rise in wool prices, have declared 14 years' arrears. The Scottish Stockholders Investment Trust, a management trust with some 35 per cent, of its portfolio in American securities, chiefly common stocks, has paid 5 per cent, on its 5,4. per cent. Stock. The attraction of these shares for the investor willing to shoulder moderate risks—I must emphasise that none of the shares is in any sense gilt-edged—is that the yield in each ease is quite generous on the basis of the regular dividend, leaving altogether out of account the arrears which have still to be cleared off. As the.earni4ri (sayer improves, as it may reason- ably be assumed that it will in the light of the recovery now apparent in the cornpanies' fortunes, the shares should have scope for iniKlerate capital appreciation.

- * * * RICHARD THOMAS' EXPANSION

Since I included the preference shares of Richard Thomas hi my list-of comparatively high-yielding issues last week the company has announced its plans ,for financing its large-scale expansion programine. The effect will be to replace the existing millions of Debentures by about £7 millions of 4 per cent. Debentiires, but I do not think preference holders need worry. * The fact that the company is able to borrow-So large a sum at a rate of 4 per cent. is itself an indication of lilt credit status. As for the cover behind the preference dividend; I see no reason why this should be impaired. The Debeiiture service, It is - true, will cost about £280,000.a year, against the present interest bill of roughly 1130,000; bin: the differenoe should -be more than made good by the increase in earnings

resulting from the capita 1 extensions. - - The programme is ainhitious but _has been carefully planned. When it gets under way, the effect will be to make the company less- dependent on tin-plate and•more iittelNested in the sheet

steel section- of its business. Richard Thomas ordiriarY 6s. :8d. ShareSare-dePrij*d around 16s. by the news that a fairly heavy new issue is to be made at 13s. 4d. at the same time as the Debenture offer. The yield on last year's dividend of 124 per cent. is about 54 per cent., but the interim for the current year, ending on March 31it, 1937; has been raised from 3 per cent. to 5 per cent. - If, as I anticipate, the total dividend is increased from 121 per -cent. to at least 10 per cent., the indicated yield becomes 64 per cent. For investors who have patience, Richard Thomas ordinaries should provide quite a useful rise in capital value as well' as an attractive* dividend yield.

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Venturers' Corner

The rise in wool prices has been so sustained that it is bound to* find reflection in the fortunes -Of companies trading in Australia. Merchant- houses, such as D. and W. Murray and Paterson, Laing and Bruce should be able to present much better balance-sheets for the current year. Some of the preference issues have already risen-rather sharply but D. and W. Murray £1 7 per cent. Cumulative Preferences have* specu- /ative attractions at 12s. 3d. The company is old-established, and carries on a business as merchants and warehousemen, with branches in Melbourne, Sydney, Brisbane and Launceston.

Before the slump profits covered the _7 per cent, dividend with a moderate margin, but since 1930 losses have been incurred, leaving the Preference dividend six years in arrears, equivalent to about 6s. 6d. per share net. There is a debit balance of 1245,968 to be eliminated from the balance-sheet, but this is amply covered by the £450,000 of ordinary capital. When the balance-sheet is tidied up, the main brunt of the reconstruction should. therefore fall on the ordinary shares.

The earnings recovery has afready 'begun. ' Profits for the year ended June 19th, 1936, rose from £3,873 to £33,496, equivalent to 31 per cent. on the preference capital, and I anticipate , a further marked improvement for the current year. The time should not he far off when the company's earnings justify a capital reconstruction which will free available profits ,for payment of _dividends. CusTos.