FINANCE AND INVESTMENT
By CUSTOS
WHATEVER else may be said of British railway directorates, they cannot be accused of timid dividend policy. Here they are again, with the risk of air-raid damage to give them every excuse for conserving resources, paying quite generous dividends even at the half-year end. Stockholders have every reason to be grateful and, what is more, the companies' policy is thoroughly justified. Official estimates of the working of the war-time pool- ing scheme point to an increase of about £7,000,000 in aggre- gate net revenue for the first six months of the year, out of which about £3,000,000 is being paid in extra dividends. That is legitimate caution which avoids faint-heartedness.
From the receipts and expenditure figures it is possible to trace in broad outline the working of the war-time arrangements. Gross receipts of the pool, which includes, of course, the London Transport Board, rose by just over 20 per cent. com- pared with the first six months of 1939. Passenger traffics were practically unchanged, but goods receipts leapt up by about 44 per cent. Expenses rose by 13 per cent., with the result that net receipts were nearly 50 per cent. higher. For a period in which there was a considerable lag in adjusting charges to rising costs these results are encouraging, although they fall short of some of the optimistic forecasts made in the early months of the year.
YIELDS AND RISKS
On the basis of the net revenue of £20,867,000 for the first half of 1940 the annual total would be £41,734P00, or just over £2,000,000 more than the £39,700,000 guaranteed by the Government subject to the war damage factor. Whether one should budget for a higher or a lower net revenue for the current half-year is, unfortunately, a problem in military rather than economic possibilities. From the economic standpoint the prospects look good. While passenger traffics will suffer through the cancellation of holidays, merchandise receipts should reflect the rapid expansion of the war effort and the companies will have the benefit, for the full six months, of the higher charges which became operative on May 1st. Even allowing for the recent rise in costs, which already justifies a fresh adjustment of charges, I should expect net receipts to be rather higher in the current half-year than in the first half, assuming that railway operations are not seriously deranged by enemy action. Just what importance should be given to the war damage and dislocation risk nobody knows. All that can be said is that the railway system is widely spread, that the £10,000,000 a year covered under the damage clause in the agreement with the Government looks quite a useful sum, and that, so far, enemy air action has not inflicted any serious blows. The risk, of course, is there, as is apparent from the yields now obtainable not only on railway stocks but on most industrial equities. To take a few outstanding cases. L.M.S. First Preference, with its dividend amply covered, yields about 8f per cent. at 48, and the 1923 Preference, at 35, yields over II per cent. About II per cent. can be had on Southern Preferred at 45 and nearly 13 per cent. on L.N.E.R. First Preference at 31. Indicated yields of this kind are evidence enough of the uncertainty of the future. It is for the investor to make up his own mind whether he thinks the current level of prices makes the stocks attractive in relation to the war risks.
ANGLO-IRANIAN SLUMP
After the Shell dividend shock I was prepared for a similar decision from Anglo-Iranian Oil. Admittedly, this company is not hit quite so badly as the Shell by Germany's depredations on the Continent, but its trade must have been seriously dis- organised by the closing of important markets. Net profit is down from £6,109,477 to £2,986358 and there is to be HO final dividend on the ordinary stock. For 1939 the dividend is thus restricted to the interim of 5 per cent., whereas 20 per cent. was paid for 1938. Results such as these seem odd from producers of the commodity which may well decide the issue of the war, but I do not expect any big recovery just yet. Many markets have been closed, and prices are strictly controlled in the " good " markets which still remain.
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