FINANCE AND INVESTMENT
By CUSTOS
Goon dividends and handsome scrip bonuses are now fighting it out with international politics for predominance in the stock mar- kets. As I forecast last week, there is again a strong tendency for prices to improve now that the market has gone through a very necessary technical correction. That the buying will be quite as aggressive as in the month immediately after the Budget seems to me to be unlikely. The international horizon is far from bright, and after their recent rise quotations in most groups dis- count a good deal of the favourable dividend news which should lie ahead. It seems to me that any material advance from the present level is likely to be selective and at a modest pace.
I.C.T. Expansion In the full report for 1950 now issued by Imperial Chemical Industries the board ex- plain the spectacular increase which took
place in the group's net income last year from £17,323,509 to £31,018,457. The in-
crease of £13,694,948, it is now shown, was almost wholly due to an increase in turnover, both in volume and in money value. Analysed in greater detail, the factors were the operation of higher selling prices from early in 1950, which counter- acted increased cost of production ; the benefits of devaluation in overseas markets ;
and the marked results from the group's heavy post-war capital expenditure. Con- solidated sales of the group at £220,800,000 established a new record. They rose from £174,600,000 in 1949, an increase of over 25 per cent. This striking expansion was well balanced as betWeen home and overseas markets. Exports reached a record total of £48,400,000, which was 25 per cent. more in value than in 1949, and 19 per cent, more in %olume. Although the balance-sheet shows, as would be expected, substantially higher figures for stocks and debtors, the group's liquid 'position, thanks to last year's issue of £20 million of loan stock, remains strong. When, at some later stage, it becomes neces- sary to raise fresh permanent capital the method of financing will depend on condi- tions ruling at the time. Stockholders will welcome this assurance from the I.C.I. direc- tors that last year's decision to raise fresh money by a private placing of loan stock is not to be taken as a precedent. In my view, except in quite abnormal circumstances, the right policy is to raise money from the com- pany's own stockholders. I.C.I. £1 Ordinary units are now quoted at 50s., at which the yield on the 12 per cent dividend is just under 5 per cent. They are still a worth- while holding.
Royal Dutch-Shell Dividends Few dividend announcements have been more eagerly awaited in Throgmorton Street than those made this week by the Royal Dutch-Shell group. The payments for 1950, which are substantially higher than those forthcoming for 1949, have fulfilled all but the most optimistic forecasts. With a final of 71 per cent., tax free, " Shell " Transport and Trading bring up the total distribution to 121- per cent., tax free, which goes against
7f per cent., tax free, for the preceding year. Royal Dutch are paying 12 per cent., against 9 per cent. Having doubled the interim at 5 per cent., against 21 per cent., the " Shell " directors have been expected in some quarters to double the final, which would have meant that the total for 1950 would be 15 per cent., tax free. In following a middle course they have probably been in- fluenced by the uncertainties of the inter- national political situation, as well as by the continuing heavy capital requirements of the group. Consolidated figures show that the profit available for the group as a whole was sharply higher last year at £49,202,066, against £35,846,934. Although dividend dis- bursements have been raised by just over £4 million to-l6,283,382 the fact emerges that appropriations to reserves have been increased from £23,250,000 to .£33 million. In the light of those figures nobody could accuse the Royal Dutch-Shell group of an over-generous dividend policy. Net profit of " Shell " Transport and Trading, the com- pany in which the British investor is mainly interested, rose from £4,828,919 to 16,433,477, and was struck after charging £5,733,433, against £4,113,784, for U.K. taxation. This group does not publish con- solidated accounts in the accepted sense but from the figures available it appears that
Shell's dividend has been covered by a sub- stantial margin. Following the announce- ment of the results the £1 Ordinary units have held steady around 93s. 9d. At this level they are yielding practically 5 per cent. on a less tax basis. This seems to me a good return on the equity of one of the strongest units in the oil industry enjoying progressive management and with further benefits to accrue from the group's heavy capital expen- diture programme.
Dunlop Rubber Finances Ordinary stockholders in the Dunlop Rubber Company will be confirmed by the position shown in the full accounts in the favourable impression formed from the pre- liminary figures. The directors now make it clear that last year's spectacular increase in the group operating profit from £9,480,850 to £17,620,116 reflected a substantial in- crease in turnover, accompanied by a higher profit -ratio. In 1950 the ratio of profit to turnover rose from 2.7 per cent. to 3.4 per cent. Turnover itself showed by far the largest increase in the group's overseas business. That point emerges quite clearly from the fact that whereas the trading profit of the parent company, which is derived largely from the home market, rose by 25 per cent, trading profits of the subsidiaries, which are earned mainly overseas, showed an increase of 133 per cent. Against the background of the figures disclosed in the' full accounts the board's decision to raise the total distribution on the Ordinary 'Stock from 15 per cent. to 17+ per cent. must be judged to be quite consistent with a policy of moderation and restraint. The total depreciation provided on the group's fixed assets was raised ..by £700,000 last year to 13,754,947 and total reserve appropriations were increased by over £820,000 to £3,218,216. Those figures
need to be related to an increase of £620,000 in the amount paid out in dividends, an increase which is partly attributable to the fact that the company raised a substantial amount of new capital through an issue of Ordinary shares in 1950. Dunlop rt Ordinary units are now standing around 66s., offering a yield of just over 5+ per cent, Despite the uncertainties which surround the stock position I still regard them as a promising equity holding.
Standard Motor Bonus After a few weeks' lull capital bonuses are again the fashion in the world of coiripany finance. The Standard Motor Company has sprung an agreeable surprist this week by announcing the board's intention to issue five new Ordinary shares for every two held. This 250 per cent, scrip bonus will involve the substantial sum of £3,662,500 and will have the effect of raising the issued capital from £1,465,000 to £5,127,500. Here is clear evidence that the Capital Issues Committee, whose decisions I have often criticised in the past, is prepared to give its consent to a large scrip bonus as part of a rational capitalisation plan. The proposed operation is one which obviously fulfils the require- ments laid down in the recent directive to the C.I.C. of capitalising hale reserves and benefiting the stability and credit of the undertaking. Most investors must be well aware by now that a scrip bonus, which, after all, is merely book-keeping, does nothing in itself to enhance the value of a share. It is a fact, nevertheless, that these announcements usually result in share values being raised on the Stock Exchange. The expectation 'Which in recent Months has been fulfilled in a large number of cases is that the directors will not make a proportionate reduction in the rate of dividend. In the case of the Standard Motor -I should cer- tainly expect that the 30 per cent. dividend rate now in force will not be reduced pro- portionately to the proposed enlargement of the capital. That explains why the 5s. shares have moved up from 27s. 6d. to 19s. At the higher level they still look a promising investment in the motor field.
A Progressive Industrial
Investors who do not mind holding shares in small industrial concerns might consider the merits of the 5s. Ordinaries of the Atlas Stone Company. These are now quoted around 7s. 3d., giving a yield of just over 5 per cent. on the 71 per cent, dividend paid for the year to October 31st, 1950. That was covered by available earnings of 22-1 per cent. This company specialises in manu- facturing artificial stone, concrete paving slabs, asbestos-cement sheeting, &c., and has works in various parts of the country. For the year to October 31st, 1950, trading profits rose from £50,749 to £69,923 and partially reflected the benefits of recent substantial capital expenditure. The company has a good balance-sheet, which shows asset values in excess of the current market price of the shares. In each of the years 1941 to 1947 the market quotation rose well over 10s., touching 13s. 6d. in 1946. It seems to me that with the' additional requirements of the defence programme the company should be kept busy over the next few years and that the shares should have scope for improve- ment from today's level.
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