GOOD PREFERENCE YIELDS Income yield rather than capital appreciation is
also the attraction of D. and W. Murray new 5 per cent. los. preference shares at 7s. 9d. This company's preference dividend require- ments have been scaled down very drastically under the recent capital reconstruction scheme, with the result that the 5 per cent. dividend is being covered with a very substantial margin. At 7s. 9d. the yield offered is 61 per cent. The other preference share in this group which should be worth locking away is the Li First Preference of Paterson, Laing and Bruce, whose much-discussed reconstruction scheme has now been approved by shareholders. The existing Li shares, which stand at 14s., are to be converted into one new zos. 6 per cent. cumulative preference, on which the dividend will be comfortably covered, and one new los. non-cumulative participating preference.
In my view the new cumulative share should be worth, say, 9s., to give a yield of 6R per cent., which leaves a balance of 5s. as the price payable for the new non-cumulative share. On the basis of current earnings I estimate that the dividend on these shares should be at least 7 per cent. If we put the shares on a yield basis of 81 per cent., which should be conservative enough even in these days, the appropriate price is 8s. 3d. The combined value of the two preferences would thus be over 17s., while the yield in relation to today's quotation of 14s. for the existing shares would be over 9 per cent. In this case, therefore, an opportunity arises of buying income economically and at the same time of getting in at a level which leaves moder- ate scope for capital appreciation.
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