WISE INVESTMENT

HAviwG already warned readers of these notes that there is no one best method of investment, and consequently that the perfect portfolio is as difficult to prescribe as the perfect holiday or the perfect wife, I feel fewer qualms in suggesting a " suitable plan " for the investment of £1,000. The cor- ditions I have imposed are such as I imagine fit the case of a large body of investors. The money must bring in an income of between 4 and 5 per cent., and, if possible, reason- able safety of capital should be combined with a chance of income of between 4 and 5 per cent., and, if possible, reason- able safety of capital should be combined with a chance of a moderate rise in value. This is the kind of list I should choose with these conditions in mind :

field Approxi-

Current on Current mate Price. Dividend. Cost.

Per cent.

200 Richard Thomas 61 p.c.

tax-free Cumulative £1 Profs. 31s. Od. 200 Pease and Partners 5 p.c.

Cumulative £1 Preis. 24s. 3d. 100 Goode, Durrant 7 p.c.

Cumulative £1 l'refs. 25s. Od.

. 4 . 51 320 250 125

£109 New Zealand Loan and Mercantile Agency 5 p.c. 150 Richard Thomas Ordinary

Cum. £100 stock £95 5t 95 -

120

6s. 8d. shares . 16s. Od. . 200 Copestake Crampton

90

Ordinary .. 8s. 3d. .. 3 •

The sheet-anchor of the portfolio is the investment of well over one-half the allotted sum in Richard Thomas and Pease and partners Preference shares. In both cases the dividends are amply covered, the yield offered is attractive, and the companies' earnings are increasing. As I have previously indicated, a special attraction of the Pease and Partners Preferences is that each share carries an option certificate to subscribe at par for Ordinary shares which should be saleable on the Stock Exchange for at least 3s. 6d. each. Allowing for the value of the options, the real price of the Preference shares becomes only 20s. 9d., giving a genuine yield of over 41 per cent.

* * * * The next two shares in the list belong to the category of Preference shares paying their regular dividend but still carrying arrears. Both companies have recently staged a sharp recovery in earnings, reflecting the improved conditions in Australia and New. Zealand. GoOde, burrant Preferences still carry 5s. net per share of dividend arrears, and the New Zealand Loan and Mercantile Preference has £12 of arrears. Here are two stocks which should continue to pay hand- somely for their keep and gradually improve in value as the arrears arc paid off.

I have completed the portfolio by the inclusion of two Ordinary shares which together account for just over 20 per cent. of the whole amount invested, not a large allotment of funds to the speculative group. Both companies have chances of substantially increasing their earnings, and I shall be surprised if Richard Thomas does not raise its dividend for the current year from 12f to 15 per cent. The gross annual income on my imaginary portfolio would be £50, giving a less-tax return on the £1,000 of 5 per cent.

* * * * TRANSPORT " C " POSITION

For the moment London Passenger Transport " C " stock is under the influence of the extra fd. per gallon on petrol, but the yield of nearly £4 2s. 6d. per cent. at today's price of 971 makes the stock look attractive. Now that the big issue of 21 per cent. guaranteed stock' of the London Electric Transport Finance Corporation has been launched there need not be much fear that the Transport Board will have to raise fresh money for extensions in the near future. Mean- time, the Board's gross traffics for the first half of the financial year (July to December) were £460,200 higher than in 1935, and I shall be surprised if, with the stimulus of the Coronation celebrations, the increase does not exceed £1,000,000 by the end of June.

Higher expenses will reduce the net gain, but last year the very . generous allowance of £2,300,000 was made out_of

revenue for renewal reserves. The Board has, in fact, made n cautious start, framing its dividends on the very sound policy of not *paying a higher rate than can confidently be expected to be maintained. It has thus disappointed the optiinistS who budgeted on the " standard " rate of 51 p:C. on the " C " stock being forthcoming at an early stage. It is worth noting, however, that an additional 1 per cent. on-Transport " C 7 requires only £257,000, so that something better than 4 per cent. may easily be practicable for the current fin-ancial year.

MORRIS MOTORS OUTLOOK

The lassitude of Morris Motors 5s. units around 41s. contrasts sharply with the excitement amid,which.buyers were eagerly paying :44s.-in the mad serail-1131e which follOwed'•the intrift- dUction of the units on the Stock Ekehange- hist Octobeti:i The. dullness of the market now is partly the, afterMath of that 'first rush of' speculative buying, when many- topheavir positions were built up. I also suspect, however, that Lord Nuffield's huge gifts have fostered an idea that .consider- ably more shares may have to be sold to provide the necessary funds, with the result that many would-be buyers, are with- holding their orders.

This reasoning, I understand,, is quite fallacious, as there, has been no further marketing of shares other than those originally introduced and none will be necessitated by the bequests made so far. With the annual accounts only two months ahead, Morris Motors may easily prove a more inter- esting market in the near future. If, as I anticipate, ths. dividend for 1936 is at least 45 per cent., the yield at today's price will be 5i per cent.; quite a satisfactory return- in view of the company's standing in the trade and its magnificent balance-sheet. A reserve fund of over £2,000,000, holdings of cash and gilt-edged of over £4,600,000, and goodwill and- patents carried at £1, indicate the immense strength of the company's finances.

In the small car field Morris Motrirs is at least holding its ground, and solid progress is being achieved in the Wolseley division and in the MorrisX-ommercial section: - I wonder whether, after all, Lord Nuffield may not spring a Pleasant surprise in March and pay something more than the 45 per cent. expected of him. Even if he does not, the shares are attractive at 41s. If he does, there is the chance of quite a substantial rise.

Venturers' Corner

The big improvement in commodity prices, especially in copper and agricultural products, is changing the outlook for Peru. The country's internal financesixave been strength- ened and the exchange has become- more favourable. The Peruvian Corporation, which operates the railway system of the country, is beginning to get increased traffics. To buy the Corporation's stocks after examining the balance- sheet calls for imagination as well as courage. Heavy losses have been incurred in the depression years and there is a debit balance of £938,976 on profit and loss account. Debenture service arrears amount to just over £800,000.

I am convinced, all the same, that the 6 per cent. debenture stock, at- least, is a proniising speculation around £70. Last year 4 per cent. was paid, and there is still nearly £20 of arrears to be cleared off. 'Traffics for the first half of the year ending on June 30th, 1937, have risen by 136,488, or roughly 7 per cent, and are improviug. The company should, therefore, be able to pay at least 4 per cent. and n- a! possibly pay a little more in respect of the current year, giving a buyer a return of over "51. per cent. on -a, reduced rate of interest, without taking into account the substantial arrears. The Corporation's PreLrence stock,' quoted at £13t per £100, or just under 3s. in the ,pound, is less attractive on its merits than the _Debentures, but will doubtless get a speculative following if the rlse in the company's_ traffics