WISE INVESTMENT

4 it possible to combine safety in investment today with a yield not- far short of 5 per cent. ? I have been asked this question so often in recent weeks that I feel I owe investors an attempt to answer it. No simple reply is possible. There are degrees of safety just as there are degrees of ,happiness, and buying safety on the Stock Exchange is not very different from buying the things one wants in other markets. Quality fetches its price, and one must not loOk for cast-iron security and 5 per cent. any more than one would expect the refinements of a £1,00o motor-car in' a car costing' £200: Having gone so far, however, on the discouraging side, I suggest that it is possible to get a reasonably safe preference share, evenin these days of low interest yields, which will 'return something over 41 per cent. * * * * A PREFERENCE SHARE SELECTION The following is a representative group of the kind of indus- trial prior-charge investment I have in mind :— No. of times dividend covered.

Carpet Trades 5% Cumulative £1

Current price.

s. d. Yield

£ s. d.

Preference .. 3i 21 6 4 13 o Carnage 51% £z Cumulative Prefer- ence 9 23 I 4

15- o

Hope Brothers 5i% £t Cumulative

Preference ..

3l 24

41

4 to 0 Houndsditch Warehouse 5% £1

Cumulative Preference .. 5 20 0 5 0 0 Neuchatel Asphalte 5% Cumu- lative Preference .. 3 20 0 5 0 0 Debenhams 451% £t Cumulative

Second Preference .. 31 25 9 5 1 0 The yields range between 41 and a fraction over 5 per cent. and the average return on the half-dozen shares I have chosen is well over 44 per cent., so that an investment spread equally over the group would bring in something not far short of 5 per cent., subject, of course, to income-tax deduction. The security is not so strong as on British Government securi- ties, but in every case is adequate in relation to the yield offered. For those investors who cannot afford to buy the best, but require a reasonable assurance of safety of income and capital, the shares seem to me to offer good value for money at today's prices.

• * * * A CANADIAN PREFERENCE SHARE

President Roosevelt's latest move in his campaign to " stabilise prosperity " has inflicted heavy losses on market speculators. It is now apparent that the Washington administra- tion has set its face against a boom and will not hesitate to damp Wall Street's ardour whenever prices seem likely to get out of hand. I cannot imagine, however, that the President and his advisers object to a gradual rise in security prices based on trade improvement or that they will run the risk of reversing the business trend. That would be pouring away the baby of recovery with the bath-water of market speculation. At the moment security prices, not merely in Wall Street but on the Canadian stock exchanges too, are depressed, but the genuine industrial basis of values should soon make its influence felt again. Meantitz e, tte set-back has uncovered one or two bargains.

Among the companies whose capital is being reconstructed Dominion Tar and Chemical has an interesting Preference share. It is a 6/ per cent. cumulative issue with arrears of dividend equivalent to over 3o dollars per too-dollar share. These are to be satisfied by the allotment of two common shares, now standing at x51 dollars, each, while the rate of annual dividend is to be redtked from 61 to 51 per cent. Deducting the current market value of the two common shares, i.e., 31 dollars, from the price of 112 dollars now quoted for the preferences, the " clean " price for the new 51 per cent. shares is 81 dollars, which implies a yield of nearly

7 per cent. As the 1936 earnings, allowing for interest savings, were sufficient to cover the 51 per cent. dividend and leave a surplus equivalent to 1 dollar on the new common, the Prefer- ence shares should be amply secured this year and the common should have scope for improvement. Dominion Tar and Chemical virtually controls Canada's creosoting trade and is already benefiting appreciably from the revival in building and railroad expenditure. Net profits rose sharply last year from 243,563 dollars to .384,166 dollars, and have expanded further during the first quarter of 1937.

* * * * TWO PROMISING INDUSTRIALS There is no surer guide to the psychology of stock markets than the reaction to company dividend and profit announce- ments. Several excellent reports have appeared in the past few days, but in the prevailing atmosphere of dull ness they have been received without enthusiasm. This is the Lund of environ- ment in which investors may find opportunities of buying at attractive prices. Two industrial shares which I should expect to stand higher as soon as market sentiment improves are the zos. Ordinaries of Carpet Trades and of Ragusa Asphalte Paving. Both companies have just issued good reports for 1936 and both have promising prospects for the current year.

Carpet Trades is one of the largest units in the British carpet industry, and has its own woollen and worsted mills, ensuring ample supplies and regular qualities of its more important raw materials. Profits rose last year from £79,783 to £96,388, and a dividend of 7/ per cent. is being paid out of available earnings of over 15 per cent., for the management have followed a`coriservatIve policy. At 14s. the los. Ordinaries are yielding over 54 per cent. on the dividend, and 11 per cent. on earnings.

The profits of Ragusa Asphalte Paving Company were nearly doubled last year at £35,172, and the dividend, amply covered by earnings, has been raised from to per cent. for the preceding ten months period in 1935 to 171 per cent. The ros. shares are quoted at 26s. 6d., which includes the final dividend of xs. net just declared, so that the yield is over 61 per cent. In view of the promising outlook for road-making companies this year the shares should establish a better level before long. Rather better prices are now being obtained from contracting work and the company has the benefit, through the devaluation of the Swiss franc, of a cheapening of its main source of supply.

* * * *

Venturers' Corner The latest accounts of Associated Dyers and Cleaners are a striking testimony to the effectiveness of the policy of the re- organised management. After a period of heavy losses, which totalled over £175,000 in the four preceding years, this company made a net profit of £17,243 in 1936. No less than 140 non- paying shops were closed, and the profits were earned in face of this reorganisation work and of lower prices due to intense competition. Translating their internal reforms into financial terms the new management is now submitting a capital recon- struction scheme designed to bring the capital into relation with earning power and enable dividend payments to be resumed. The scheme is drastic but equitable and, in my view, opens up interesting possibilities for the existing Prefer- ence shares.

These are now quoted at 15s. and under the proposed plan their nominal value will be reduced from LI to as. by the repayment in cash of 2S. per share. The 18s. nominal of capital will then be converted into t 4-5 new Ordinary tos. shares, carrying the right to a non-cumulative dividend of 61 per cent. and a further participation of one-third of surplus profits. In effect, therefore, a buyer of the existing Preference shares at 15s. -is giving 13s., allowing for the 23. cash repayment, for 18s. nominal of the revised Ordinary capital, in other words, buying the new los. Ordinaries at just under 7s. 3d. each. If, as I believe is probable, the new Ordinary shares get their basic rate of 61 per cent., which is covered on last year's earnings, after adjusting for the saving in depreciation charges, the indicated yield would be 9 per cent. There should be scope here for capital appreciation, apart from the prospect of a [Readers' enquiries, or requests for advice regarding particular shares, will be answered periodically as space permits. Cor- respondents who do not desire their names to appear should append initials or a pseudonym to their questions.]