WELLINGTON NEWS

Hokitika Guardian, 10 April 1929, Page 2

WELLINGTON NEWS

DIVIDEND DECLARATIONS

[Special To The Guabdian.]

WELLINGTON, April 8

Tn the monthly bulletin “ Business Conditions,” issued by the Alexander: Hamilton Institute of Australia, it .ip' pointed out that dividend declarations are always matters of considerable interest to the community, directly or indirectly, for they afford an excellent criterion of the trend of business. It* has been ascertained and proved in the United States that there is no common average to which company earnings tend to approach, that is, no average, no matter of what kind, which can be considered as normal for single, group or investments as a whole. Earnings vary considerably, at different times, and no similar combination will yield identical results. Very little if anything has been done as yet in a comprehensive study of Australian and New Zealand investments, though it is clear that information regarding say. the frequency of dividend declarations would be of the utmost value to those whose business lies in this direction.

For the purpose of its analysis the bulletin has taken 191 companies located in all the Australian States and New Zealand, for which dividends were declared in 1928. These companies have been grouped into banks, insurance, trustees, gas, shipping, pastoral and finance, building societies, breweries, newspapers, amusements, hotels, stores, rubber, miscellaneous, and coal. The dividend declarations refer to those on ordinary shares, preferred shares not being taken into consideration, and moreover have been divided into frequency groups, each group having a range of just short of 2 per cent. A statement is given in which the number of companies declaring dividends on ordinary capital is allowed to a frequency group, and. the percentage of ordinary capital to whole employed in each industrial or commercial section is indicated. • There is no doubt that by this method the possibilities of finding out the dividends which can be expected by investing in certain types gf shares are greater than by the method of averaging dividend rates. The analysis of the banking group shows that 42.4 per cent of the ordinary capital employed earned from 14 to under 16 per cent., and is the only example in the whole of the groups analysed where so; large a proportion of capital employed had earned dividends in practically tho highest grade frequency group. It is claimed that 90 per cent of the ordinary bank capital employed earned from 10 to under 16 per cent. It is not disclosed how the; reserve funds—and most banks maintain vast visible reserves—have been treated. Tliese reserves which are composed of undivided profits and premiums on new issues of shares, are not placed in cold storage, but are employed by the banks for the benefit of the shareholders. The earnings of the reserve funds ought in all fairness to be taken into account. It is because of the large reserves, and the reserves of most ol the bankb are equal to the paid-up capital and in some cases are in excess of that, and the functions of the reserve funds aie too often overlooked by the critics of our banks. Bank dividends appear large, but a good proportion of the profit is earned by the reserve funds. The frequency of bank dividends, that is tho regularity with which they are declared and paid, has no doubt provided company promoters with a tolerable excuse for inviting public support for three new banks. At the present time investors are invited to furnish capital for the Mercantile Bank of Australia, Ltd., and 8 per cent A preference shares of £5 each look attractive until it is remembered that a pr - mium of. £1 per share has to' be paid, tb. t is to say that £6 has to be paid for a £5 share and the dividend of 8 per cent will be paid on the £o and not on the £6, so that the return io .'re investor will be not £8 but £6 13s 4d per cent. The promoters of the Australian and New Zealand Bank and the London and New Zealand Bank have promised to circulate their prospectuses shortly so that the investor who hankers a?*er bank shares at par will have, a choice. Before subscribing for the shares in any one of these new banks the iri'-ef-tor should don his considering helmet and consider whether there is room foi these three banks or even for any one of them. There is no shortage of bankj.,-, capital either here or in Amc.-alt’*, juiu if there were the trading banks can soon raise the required ' capital., Tho Commonwealth Bank of Australia lias just raised £500,000 by the issue of new shares which were issued r,t 100 per cent premium and were g.< cully snapped up.