INVESTMENT NOT E s
By CUSTOS
MHE rally in equity shares has been restored' I as 1 thought likely, but I did not anticipate that it would be accompanied with loose Pk about inflation. If inflation is going to return it can only be because import prices are going io rise and the trade unions are going to lose the sense of proportion and demand wage rises far ahead of productivity. There is no sign of either of these portents. Why inflation talk in a Sunda) newspaper should be treated seriously I do rl°,t know, but the increase in building society more gage rates was sufficient to cause some setback in the gilt-edged market. This is another reminder that the authorities have unfortunately accepted dear money without trying to insulate the domestic rate for social investment from the market rate for industrial and commercial
rowers. WAR LOAN has now fallen to an
° unless the authorities order their monetary, affairs better it may be seen this year at 58'' to yield 6 per cent. The equity revival may 1/ develop as the professional managers resume buying of the 'cyclical' shares which have alreadY suffered their 20 per cent. fall (such as PRESS° STEEL). If we are in the last half of the bear reaction some of these 'cyclical' shares have Per seen their Iroin for tbis year.
on-cyclical Shares
For those investors who do not want the trouble of having to go in and out of shares sub' ject to wide cyclical movements—common 14 certain consumer durable trades-I suggest the steady type of consumer business catered for by ItECKIII AND COLEMAN. Its trading profit for the Year to December increased by 16 per cent. The rate of growth in profits over the past five years has been 10 per cent. per annum compound. The final dividend was raised to 7 per cent. making 12 Per cent. for the year against the directors' forecast of 10 per cent. on the increased capital. The higher rate was 2-1- times covered by earnings. At 66s. 6d. the shares yield 3.6 per cent. CEREBOS is another outstanding non-cyclical 'blue chip.' At 45s. the 5s. shares return 3.1 per cent. on the 272 per cent. dividend last covered nearly twice, but the effective rate on the capital now doubled by the 100 per cent. bonus may be raised. If these yields are perhaps too low for some in- comes I suggest combining them with J. AND P. COATS, which has just startled the market by more than doubling its equity earnings for the Year to December and raising its dividend from 10 Per cent. to 15 per cent. At 43s. 6d. the shares Yield nearly 7 per cent. There is of course more risk attaching to these shares than to the other two, for foreign exchange losses can be made and cotton prices may move against the company. But the current year's outlook is quite favour- able.
S Per cent, for Growth I have previously recommended DECCA 'A'' at a higher price than the 45s. quoted today. If I read the interim dividend announcements right the distribution for the year will be 23 per cent. not 20 per cent. and the yield 5 per cent. The first interim was raised from 3d. to 4d. and the second has now been raised from 4d. to 5d. Apart from the excellent Decca navigating system the record side of the business is once again flourish- ing. Manufacturers' sales of gramophone records Were 28 per cent. higher in the first three months of this year than in the corresponding period of 1959, (In March they were actually 61 per cent. higher than in March, 1959.) The company's earnings have been growing at the rate of 111 Per cent. per annum since 1955. A. E. REED, re- covering steadily from the surplus capacity in the paper and packaging industry, is another growth share with a high yield. At 57s. 6d. the shares yield 5.6 per cent. on the 16 per cent. divi- ficria (raised from 14 per cent.). For the year to March turnover rose by 12 per cent. and, with Profit margins widening, profits before tax by 20. Per cent. The new dividend is covered 2.4 times. The risk to the company's trade from the new free trade area of the 'Seven' has yet to be measured.
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