FINANCE AND INVESTMENT
By CUSTOS
AFTER the recent rise one cannot be surprised that markets are pausing. President Roosevelt's re-election, the victory at Taranto, these and other external factors have been pretty generously capitalised, thanks to the magic of a "closed market". I am not suggesting that the recovery has been overdone, but in some groups, notably front-rank industrials, such as Boots, Turner and Newall, London Brick, Thomas Tilling, and J. Lyons, it is at least arguable that current yields are now in line with gilt-edged. When the rise is resumed, as I am confident it will be unless we get some really discon- certing news from the war front, it will be more selective. Investors will have to renew their search for income among the depresced groups where yields are still very high, and where there is plenty of scope for recovery before E.P.T. steps in and takes all. Fortunately, there are quite a number of such shares available in the market. Some of the junior prefer- ences of the home railways, recovering textile and shipping shares readily come to mind.
HIGH YIELDING SPECULATIONS
If it is true that the recent rise in equities has already nar- rowed quite appreciably the gap between the yields on gilt- edged and those on first-class home industrials, there still remains a wide choice among the less well-known shares for investors who do not mind some risk as the price of getting a really high return. Here are four investments which are worth considering from this point of view:—
• Price. Yield,
Canadian Pacific kroo 4 p.c. Pref. £45 ••• 8.9 Southern Rly. 5 p.c. Lzoo Preferred £46 ... lo.3
Paterson, Laing and Bruce Er 6 p.c. Non-Cum. Pref 9s. ... 13.3
Whitehall Electric 71 p.c. Et Pref. Jos. 6d. ... '4.3 All are speculative but, as I see things, the risk in every case is very generously allowed for in the price, and conse- quently in the return offered. C.P.R. preference should certainly be able to pay the full dividend rate for the duration of the war, and the same goes for Southern Railway preferred and Paterson, I aing and Bruce preference. The low price of Whitehall Electric preference reflects the uncertainties im- plied in this company's holdings in Greece and Spain. Assum- ing, however, that no income is derived from these sources, and the capital is lost, the shares are not dear. There are other substantial holdings in West of England Electric, American and Foreign Power, as well as a mixed bag of electricity and industrial investments.
INDUSTRIAL DIVIDEND SURPRISES
Taxation is playing tricks with dividend estimates. Her we have the B.S.A. company able to raise its dividend from 6 to 71- per cent., while Dorman, Long, which is equally e gaged in contributing to the war effo,-, has cut the preferr dividend from 18 to 15 per cent., and the ordinary rate from to to 7 per cent. Rather surprisingly, Dorman, Long's trad ing profits for the year to September 3oth were slightly lower at £1,395,029, against £1,481,395, which suggests that so special factor was at work. The lesson for the market is tha it is unwise in these days to budget on dividend rates being uniformly maintained even when it is known that a compan, is operating at full capacity. To that extent it is wrong total the current yields as firmly established in making compariso with gilt-edged yields.
Other recent instances in which taxation has played bar with net earnings and consequently with dividend forecas have been several of the Rhodesian Copper undertakings, su as the Rhokana Corporation, and engineering concerns Lightalloys. Every prospective purchase should now be fully scrutinised from the E.P.T. angle.
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