Show Economist Discusses Local Utility Investment Status Electricity Put to New Use i Special Special BABSON PARK lAnK Fla Ia April 9 Roger Hoser W Babson today gives Ives the seventh of his series of ot fam- fam tarn fly lly Investment talks stalks lie He now treats with with- what aro are commonly known as RS local utility preferred stocks His complete statement Isas Is Isas isas as follows Last week I treated first mort mort- gage gages eases on homes advising that such gush su h mortgages are probably the safest means of getting Betting a rato rate of from six to eight per cent ac according ac- ac according cording to the locality Emphasis was laid on I Uie Iye e point however that these mortgages are safe late be- be because because because cause they are local In ones one's own home town rather than because the they happen to be mortgages It should however be remembered there are ara other good local investments In every community besides mortgages SELECT LOCAL I INVESTMENTS EST I believe In local Investments because the hill hili furthest away always alwan look looks the tho greenest Stalls Statis- Statistics tics Stalls tics show that most losses on In- In investments vestments In vestments oc occur occur ur at a distance when one buys buS stocks or bonds from a a prospectus and Is not ac- ac actually actually ac actually a acquainted with the com com- company company pany pang or the men who are aro running It It Yet It Is strange to say that It Is easier asler to sell stocks In some company In fn a a distant city than It 1 be to sell stock In tho the same kInd of a a company In ones one's own owr city People lIke liko to buy from Prospectuses promises and photo photo- photographs photographs f graphs rather than from actual knowledge This Is probably be- be because cause causo the tho printed page tells only the buying good points while when buy buy- buy ing something In our own cIty or town we wo know the tho bad points as well ell Every proposition has ha some bad points and It never nevel does doe us any ny harm to know them Hence I like Jike to advise people to take local mortgages or other other- otherwise otherwise wise Ise Invest their money so far tar as possible In their own town where they know the conditions and know the people The only danger Is that when buying In ones one's own town one ona sometimes s buys bus for I friendship or to help people out and such purposes are of course dangerous from an Investment standpoint Investments In ones one's I own home town must be bl strictlY ton Ion on a n business basis without reo re- re regard gard gad to friendship We would not let some young doctor take out our appendix aIm simply ply because heIs heIs he heIs Is a friend of the family and neither should we let anyone In- In Invest In Invest vest est our money or sell us stock In some Mme company simply because he heis heIs Is a a friend of the tho family or be- be because be causo be-causo cause causo he is someone to whom we ve hate to say y No DANK BANK S STOCKS roCKs It nECO ECO M MENDED I cannot advise one to go into Inlo new enterprises unless he can af- af afford af afford ford to lose the money because the majority of new enterprise a have to be reorganized before the I company gets on a a paying pa ng basis henc hence the original stockholders In InI Inmost Inmost inmost I most companies either loso lose theIr money or are obliged to put up an assessment There are however many established Industries In fn every city which havo have been through their troubles the stock of which Is now a sate safe Investment The stock stocks of the local banks especIally the older banks are a avery avery very good Illustration of o such in- in investments In Investments vestments Certain local Industries are also illustrations I hesitate however to advise the average citizen to Invest In a IJ local Indus Indus- Industry Industry industry try unless he lie or some one of hIs friends Is working for tor It and actually ac- ac knows the Inside condl- condl conditions ELl I POWER AX AND s o The principal local companies companio s which are not subject to severe sever competition and have have permanent permanence because they are not directly de- de dependent de dependent dependent pendent on the life of some one Individual In- In IndivIdual in- in individual are the public utilities utilities- utilities preferably the electric light corn com company parry pany the gas company and the wa- wa water era water ter company As most water waler com com- companies paniCs paniC's are now owned by the mu- mu munIcIpality municipality this leaves the choice to tithe the electric light and gas com com- companies Street railway company compan securities may again be attractive after the bus business becomes sta and street railway officIals cease being pig-headed pig In clinging to their tracks and trolley wIres but only very ery few street railway companies are aro yet awake to to the new conditions The local light and ana power companies however ever and the tho gas companies are being operated Intelligently In addition to being free from competition Furthermore Further Further- Furthermore Furthermore more unlike telephone companIes are also a public utility the Improvements which are being In in- in installed installed stalled sta continually enable electric and gas companies to reduce their rates which telephone companies cannot do Hence telephone com com- companies companies will probably have havo much more political difficulties during the next few years than will elec- elec light and gas companies Electric light and gas com com- companies have another advantage duo duoto duoto to duto their small labor cost and conse quent freedom from labor troubles In the case of steam railroad and street railway companies the great great- greater greater er part of every ery dollar received goes for tor labor Jabor Hence any Increase In- In Increase Increase crease In wag wages s of the profits This ex ex- ex explains explains plains wh why the railroad companies and street railroad companies com paniCs paniC's ar aril forced to resist wage Increases and heave are arc continually having labor difficulties Electric power and angas gas companies on the tho other hand han spend such a small proportion of their money for wages that they can always pay the current curlent wage a and industries give ghe increases with other In- In without seriously affect affect affect- affecting Ing pocket or I this reason a man maIs mants ts much better working for an electrIc power and gas company than ho he Is working for a street railway way company Furthermore the of an elec electric power or orgas orgas ogas gas company do not need labor unions to Insure themselves a fair wage at all times STOCK SAFEST S Most public utilities have three kinds of securities o outstanding namely bonds which yield from 6 to 6 per cent preferred stock stok which yields from 6 to 10 7 per cent and common stock The Tho bonds bonds of course are the safest especially when such bonds are of or the oper- oper operating physical company which owns tho the phy phy- phy steal property First mortgage bonds are the safest of all but any such hand lean nA t A gage gaRe on the physical property p t and approved by the public service commission should be bo all rIght rightMost Most 1 bond Issues of holding corn com panics companies should also be bo safo safe but as such sueh approved uch Issues usually need not be ap- ap BI proved by any state elate commission there II Is a tendency to make mako them thel large for 1 Investors Next to the bonds Of o the operating I company comes the preferred stock j i of the operating company This Is Inot not secured by mortgage and the Investor can call do nothing If It dividends dividend are arc suspended but these preferred stocks are usually very good Invest Invest- Investments ments Next comes the tho common stock These Th A of used the to operating be t very ery attractive A company compan J I i speculations but now most of these thea theao common Stocks are In the treasury o of Inmany some Borne holding company I In Inmany many cases eases those common stocks serve sno as security for the bonds of the holding boldinI companies Thus Thull most preferred of ot the tho trading today Is In the pre pre pre- stocks and common stocks stock of the holding companies These business latter are arc usually all right for busi- busi bust ness men but they are ore not what J I Jam Iam am now advising adv My dation recommendation as a local Investment Is the preferred stock of the tha company compan which has tho the franchise and owns the electric company or gas com com- company company pany In fn your city Such preferred stock Is prece preceded only by the opera oper company's bonds while such preferred stock Is always alwa's followed by the common stock of the operatIng Ing company and usually by the bonds preferred and common stock of the holding company The custom today among the best public utilities Is to leave leav anto the common stock unchanged and an I sellI to finance their additions by sell sell- In bonds and preferred stock In approxImately equal amounts amount Usually the bonds are sold Bold to bankers In New York and the preferred stock to the company's customers In the city where th the company operates It Jt Is 18 this pre pre- pre preferred erred stock by the com corn company pany any owning the public utility In your our own city that I espeCially recommend as I a local Investment These stocks pay from six nix to soy soy- seven soyen sev seven en per cent dividends In most cases the stock Is b cumulative cumulative- cumulative that Is IB If It a a dividend should be omitted any year the tha company must make mako up this dividend Le- Le before be before fore foro It can pay any on the tho common stock This accounts for tho old saying among keen in- in investors In Investors veator that t one should buy pre pre- pre preferred stocks stocka that are cumulative o and common stocks In companies u where the preferred Is non non non l This preferred can ue ne bought In shares of one hundred dollars each and many companIes arrange for their customers to pay for the same on the In- In In Instalment instalment plan having the monthly payment added to their bill for electrIcity or gas Of Ot course a person should not put all hIs saYings savIngs In anyone any one thing but I certainly certainly believe these stocks purchased on the tho Instalment plan I dIrect from the company are avery a very good method of saving Baying money WHAT TO 10 W Unless a a municipality erects a power station of Its own a pub pub- public lic utility has bas little to fear front from longas competition Moreover so long as the state slate has the tho regulation or of o rates there Is III no possible ex ex- ex excuse excuse cuse for tor a city to manufacture Its own electricity e or gas Certainly Certainly no municipal municipal plant In the th United States manufactures elec- elec electrIcIty elecy as cheaply or gives as asgood asgood good a-good good service a as as do privately own own- owned owned ed plants A public utility IS ISa Isa a natural monopoly and hence the only thing to watch Is the fran fran- franchises franchises and the attitude of the state utility commission whIch determInes the rates As the tho Iwo peo- people plo of the municipality control the tho franchise and tho the state utility ty commission acts only upon uron public pressure the customers or of ofa ora oa a public utility are arc a a great factor In tho the situation This Is a rea- rea reason reason reason son why the whole public pu bile utility business will be safe safe- as the customers cus- cus customers customers be omo be-omo omo stockholders addItional beI I Every additional tonal voter when lie he buys a share of stock in the lo 10 local cal public utility automatically makes that public utility a safer investment This Is a very Im- Im Important Important Im Important factor to remember be- be because be because cause causo the tho only danger er which can come to such public utility stocks will be through political tion persecution rate reduction or refusal 1 to renew franchise al of ot which art controlled by the voters voter MAM l NEW USES There Is no danger of public nubile utilities not getting enough gross gros business The uses for tor both elec- elec electrIcity and gas are constantly jn- jn increasing creasing Just now we wo are entering entering en- en entering an era where electricity exclusively exclusively or gas will be used exclusively for refrigeration The Ico ice cart In the public streets will become as obsolete ob ob- ob obsolete forI I solete as the old well vell In the back yard or tho rho cistern In the tho eel eel- cel cellar tar lar Other Othu uses not yet dreamed of are liable to come on us any t anytime ime av a i suddenly JI as aj the tha radIo All Allour our homes will some day clay be heated either by electricity or orgas or the gas the oil burner is only a temporary step In that dIrection The uses of Df gas Industrially has only started Not only docs does the output of o and gas go up when tho the rIses but this output rises at at a a much more rapid rate Moreover far these public utilities have havo not suffered during a depression We Ve seem sem to use about as much I IVe electricity and gas In our homes whether business is good or bad Today when general business as indicated by the Is 10 per tier cent above normal It Is very Important to Invest only In properties which do not suffer to In Ina toa Ina I InI a business depression This Is an additional reason for buying the preferred public stock of your local pub pub- lic lie utility If It you do not have large facilities for research Copyright 1926 Publishers Publisher's Finan tai Bureau |