INVESTMENT NOTE
By CUSTOS
WITH the Treasury bill rate down to £3 4s. 6d. per cent. the Government should really do something to cause the long-term rate of interest to fall. At the moment Funding 5+ per cent. ex dividend is quoted at 100+. Until this stock is supported, the market in 'longs' will hang fire. Equity shares are also hanging fire. The average yield on the Financial Times industrial index is 5.45 per cent., but the 'leaders' are, of course, offering returns well below that level of yield. TURNER AND NEWALL, in Spite of lower profits, yield only 4.1 per cent. at 72s. 6d. on their 15 per cent, dividend covered by earnings of 43 per cent. METAL BOX have increased their interim from 4 per cent. to 5 per cent, on improved sales, but at 67s. the yield is only 3.6 per cent., even if the total is raised from 11 per cent. to 12 per cent. The investor should leave the leaders alone until prices are more favourable. This is the season for steel dividends and SOUTH DURHAM opens it with a lift in the final dividend from 6 per cent. to 8 per cent., making 12 per cent. against 10 per cent. My preference is for STEEL OF WALES (now 21s.), which has been busy and prosperous enough this year to pay more than 8 per cent. If the result (due as this page is printed) is favourable, it would be my first recommendation to buy.
Road Shares
The acceleration of the road programme and the suggestion of the British Road Federation that the existing allocation of £280 million for the next four years should be trebled has brought fresh investment inquiry for the shares of companies employed on road construction. These contracts are often finely cut and I would much prefer the shares of the companies which proyide the materials for the job. Of the quarry companies I like 14ILLHEAD HUGHES, of Buxton, which has a fine management record of gradually rising profits.
For the year to December, 1957, it earned nearly 50 per cent. and distributed 22+ per cent. This year's results—due in April—should be better, and next year's better still. Even if the distribution is not raised the yield at 17s. 9d. for the 5s. shares is 6.3 per cent, and if 25 per cent, is paid the yield would be close on 7 per cent. This is a small company with an equity capital of £400,000, so the market is somewhat narrow. Gold Shares More interest is usually taken in gold shares when industrial shares enter a dull period. Since March the shares of the developing OFS mines have risen in the market by about 33 per cent. and those of the finance companies by about 25 per cent. Some of them now look rather dear but I was interested to see some exceptions clearly marked out in a broker's analysis this week. For example, WESTERN HOLDINGS and FREE STATE GEDULD stand out in the OFS list. A steady rise in dividends over the next two years is forecast and on the 1960 estimate the potential dividend yields are respectively 10.3 per cent. and 8.7 per cent. On the existing dividends Western Holdings at 117s. yield 5.95 per cent. and Free State Geduld at 118s. about 4.2 per cent. Among the finance houses GENERAL MINING makes the best showing. On the basis of the increased dividends received up to the end of this year (the effect of which will be shown in the next accounts), General Mining at the present price ctf 115s. returns a potential earnings yield of nearly 17 per cent. This com- pany's investments are 87 per cent, in gold and its chief holdings are in Free State Geduld, Free State Saaiplas, Harmony, Stilfontein, St. Helena, and Buffelsfontein. Its last dividend was 5s. and the current dividend yield is 4.4 per cent. •
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