WISE INVESTMENT

,I SHALL always remember the puzzled surprise expressed by an acquaintance who recently sought my advice on " the

suitable investment of £1,000," when in reply I asked him some half-dozen questions. Was his aim security of capital, or a generous income return ? Or some " reasonable com- promise " between the two ? Was he less interested in either of these than in obtaining capital appreciation ? Was the money in any sense spare, or did it form an important part of his worldly wealth ? If he was really after high income or capital profits, how much risk was he prepared to run to get them ? Only after my acquaintance had put himself through a rigorous process of self-examination did he tender the required answers, and not until then could I begin to be much help. . I recapitulate these points because they are relevant to the solution of all investors' problems, and I shall have them in mind in writing this investment survey. In discussing the merits of various classes of investments I shall indicate the kind of purpose for which they are most suitable, having regard to the yield afforded, security of capital, and risk involved. Primarily, the aim will be to help the investor of moderate means to spread his capital in such a way as to obtain a reasonable over-all yield, the " something better " than the 84 per cent. returned by gilt-edged stocks.

The position will also be reviewed of the ordinary shares of progressive industrial companies which appear to offer prospects of moderate appreciation of capital as well as, or in some instances as distinct from, a reasonable income yield. Finally, under the heading " Venturers' Corner," I shall outline the position of shares often described as recovery speculations. In most cases the companies in question will be out of the dividend-paying list, so that buyers must be prepared to forgo immediate income yield in the hope of making capital profits. In all cases, while the shares will be selected with care on the basis of their recovery chances as the trade improvement broadens out, they should be regarded as a suitable medium only for such part of the investor's capital as can be afforded for venturesome employment.

* * * * BUYING INCOME To turn, first, to some safety-first investments, I have always rated very highly the merits of our electric supply companies. Consumption of electricity is rising by leaps and bounds. This year it will show an increase of 15 per cent. over last. In 1935 it was 13/ per cent. higher than in 1934. The gain since 1928 amounts to 93 per cent. Everything points to further progress. Technically, the electric supply industry is still developing, which means that the product is being made more attractive and cheaper to the consumer.

Here is an environment in which one can seek, and find, a well-secured outlet for capital. I suggest the following group of preference shares as suitable investments for those whose prime consideration is safety and who do not mind paying the high price now required to obtain a cast-iron

31 p.c. : No. of times

Current

Dividend Price. Yield.

Covered. s. d. £ s. d.

Clyde Valley 6% Cumulative

El Preference 22 32 3 3 14 6

North Metropolitan 6% CUM.

£1 Preference ..

31 9 3 15 6

Shropshire, Worcestershire and Staffordshire 6% Cum. £1 Preference

31 31 0 3 17 6

Yorkshire Electric Power 6%

Cum. £1 Preference ..

7

32 0 3 15 0 All these are Parliamentary companies operating under statutory powers in their respective areas. In each case the load is being improved by industrial revival. Clyde Valley is benefiting from the recovery of iron and steel and ship- building. North Metropolitan, which serves the northern dormitory of London, is selling more power to the newer industries ; " Three Counties " Electric serves the lighter kind of industry, and Yorkshire Electric a great variety of industrial consumers.

These preference shares are impregnably entrenched, but are also quoted at substantial premiums. In other words, they are money stocks subject to the same influences as Government securities. One day, when interest rates rise, the premiums on this class of share will be smaller. That is why I recommend this group to investors to whom the market value at any particular moment is not important, so long as the income is assured. In buying these shares, the investor should regard himself as purchasing a certain fixed income of 34 per cent. for an indefinite period ahead.

. * * * OVER FIVE PER CENT.

What about investors who are prepared to put out a little way from the shore, although not very far, to obtain 5 per cent. or more ? A selection of preference shares in the stores group seems to me to afford just about as satisfactory a method as is available at the moment. This is the kind of selection I have in mind :

William Whiteley 5% Cum. £1 No of times Dividend Covered. Current Price. Yield.

s. d. £ s. d.

Preference • ..

31 21 3

4 14 0 Debenhams 7% Cumulative 10s. Third Preference

21 13 0 5 8

0 Montague Burton 7% Cum.

£1 Preference ..

31 27 3

5 3 0 John Lewis 7% Cumulative £1 Preference 21 26 6 5 5 0

An investment spread equally over these four shares will return rather more than 5 per cent. with quite a substantial measure of security, as the " cover " figures show. All four companies have latterly demonstrated their ability to increase their earnings considerably in -conditions of improving retail trade. I look for a further rise in their profits, which will enlarge the cover for preference shareholders, .in 1937.

* * * * WESTINGHOUSE BRAKE

A yield of rather less than 3 per cent. may seem unreasonably low for industrial ordinary shares, but that is the way of things now in the equities of progressive Companies in expanding branches of trade. The £1 ordinary shares of the Westinghouse Brake and Signal Company arc-returning just under 21 per cent. at today's price of 75s.6d., calculated in relation to the last dividend of 10 per cent.

The company manufactures brakes for steam and electrified railways and tramways, and makes all types of inilway signal apparatus. It is now benefiting from the release of a huge banked-up demand for this kind of equipment on which expenditure was cut down to a minimum in the depression years. The next accounts, due this month, will cover the Year ended September 30th, 1986, and may confidently be expected to show a further sharp rise in earnings, and I shall be greatly surprised if the dividend is not raised from 10 to 15 per cent. The indicated yield is therefore about 4 per cent., with prospects of a further increase, the company having work in hand for at least three years.

* * * *

Venturers' Corner

There is support in the market for Scammell Lorries' Os. 8d. shares around 9s. 6d., a price so far removed from the value of the shares as indicated by the last profit and loss account that I suspect that the buying is significant. The company has two strings to its bow in that it makes not only heavy commercial vehicles but the " mechanical horse," which has latterly established a definite place in certain forms of short-distance transport.

I understand that demand has improved materially on both sides of the business, although I do not look for any spectacular increase in profits in the next accounts, due in April. There should be sufficient evidence of recovery, however, to justify at least the current price of the shares, and a prospect of a further substantial increase in the 1937 earnings which will provide the basis for a higher price later on. The shares are a speculation, but the chances of a rise seem to outweigh the dangers of a Ian. At •least, that is the opinion of Comps.