By NICHOLAS DAVENPORT
* * *
As a nation we have, however, firm grounds for self-congratulation. While exports for the ten months increased by about 6 per cent. consumption increased by only 3 per cent. I hope that Mr. Butler, when he comes to dispose of his Budget surplus, which may be anything from £200 to £300 millions, will recognise that the national virtue of restraint deserves the reward of 6d. or ls. off the income tax. The Economist, in its traditional role of Scrooge, is already preparing to oppose such clem- ency. It estimates the increase in real resources last year at £600 millions which it allocates as follows : £300 millions to the increase in consumption, £100 millions to the improvement in the export drive and the balance to the increase in defence expendi- ture, house. building, and fixed investment. But as it guesses the increase in money wages and salaries alone at £600 millions it argues that the increase in dividends and undistributed profits meant inflation, an excess of monetary demand over physical
resources, expressed by the rise of about 3 per cent. in prices. There are too many guesses in this calculation for me to be con- vinced. 1 would ask the Scrooges to con- sider how they can expect to increase pro- duction in 1955 in a tightly stretched economy unless they give us some incen- tives—in reduced taxation—to work harder.
* * * According to the Financial Times the profits of industrial companies reporting in 1954 were 18 per cent. higher, at about £460 millions. The net amounts distributed by dividends on the equity capital increased by 21 per cent. to about £180 millions. In other words the equity shareholders received in cash (after tax) about £32 millions more thaA in 1953. It does not seem a large amount tb cause excitement in Transport House, although there will be critics on the Left who will jump on the fact that the per- centage of equity earnings distributed rose slightly last year by 39.1 per cent. against 38.7 per cent. in 1953. The Financial Times already has the answer—that the increase in distributions has been slowing down over the year—it was 46 per cent. in the first quarter—and that 39 per cent. represents
the extent of 'the board-room revolution' brought about by the political unfreezing of dividends and the bidding-for-control by outside financiers. The implication of this statement for the investor is that any further increase in dividends in 1955 must depend upon increases in profits. There is no reason to suppose that profits will not expand with production but that they will increase by as much as 18 per cent. is most unlikely. To begin with, this will be a year when wages will rise—if the unions have their way—faster than production. Next, the effect of the recovery in the United States will almost certainly be a further rise in raw material costs. Finally, there will be more intense competition following upon the increase in industrial capacity which tends to move ahead of the increase in demand.
The investor must not expect, therefore, to see anything like the 40 per cent. rise in industrial equity shares which was recorded by the Financial Times index last year. In the course of the twelve months the dividend yield on the group of thirty lead- ing shares included in the index fell from 5.54 per cent. to 4.6 per cent., although the yield on old Consols fell only slightly to 3.8 per cent. Clearly this discounts some increase in dividends. If the increases declared in the coming dividend season exceed expectations the market will rise further; if not, it will fall. On the whole it looks like rising until the Budget draws near because the dividends now being declared exceed, on the whole, market expectations.
Previous page
