WELLINGTON NEWS

Hokitika Guardian, 6 December 1929, Page 3

WELLINGTON NEWS

NO BONUS DISTRIBUTION

(special Correspondent )

WELLINGTON, December 4

For lour consecutive years the Bank of Xe\v. South Wales has distributed among its shareholders 10 per cent in dividend and kt per cent in bonus, making in all 1-i per cent, hut this year the usual dividend is paid hut not the bonus. Jt should he remembered that there is a distinction between dividend and bonus. Jt very joint-stock company, and particularly banks and insurance companies and similar concerns strive to maintain the dividend rate year after year, for any lowering of the dividend would be a serious reflection on the concern and particularly a bank.

A bonus is quite a different matter for it is a special grant and is paid only if the profits for the year warrant, and the bonus may vary in amount from year to year or may be withheld at any time as in the case of the Hank of New South Wales. A recurrence of the bonus yearly should not be relied upon by investors, hilt the Stock Exckange in calculating return on investment invariably include the bonus. Shares in the Bank of Now South Wales were sold at £47 os (they are £2O paid up) early last week and the return on investment was calculated on the dividend and bonus of 12* per cent, 10 per cent being dividend and 2% per cent bonus.

When it was announced that there would be no bonus, distribution sellers promptly reduced their price to. .04.3; in Sydney the price dropped from £3 to C!) per share, which would make the Sydney price £3B which is about the true price of the shares on a 10 per cent basis, and a. return of slightly more than 5 per cent. Tips drop must affect all hank shares in Australia and Now Zealand for investors will now realise, that it is unsafe to include the bonus when calculating the yield. But what is a fair yield on bank shares? During the past few years through the stress of competition hank shares have been forced up beyond their intrinsic worth as relating to yield, hut now investors and brokers will he forced to view investments in bank shares' from a new angle and for that reason the directors of the Bank of New South Wales have done a service to the investing public.

When the shares of a company rise beyond their intrinsic value in relation to income yield thenfit is speculation, and that was the trouble on the New York Stock Exchange, where shares were boomed to prices that gave a return in many cases of per cent. A low return is sometimes" warranted when there is a prospect, of capital appreciation through the tissue of bonus shares, or new shares at a small premium, otherwise it is pure sepeulation and the speculator generally meets with trouble. .

The Bank of New South Wales has withheld the distribution of the bonus for very strong and sound reasons, and although some investors may .lose money the action of the Bank is hound to direct attention of the public of Australia to the unhappy economic conditions into which they have allowed the country to drift. The adverse economic conditions of Australia were pointedly referred to by Mr Buckland, the Chairman, in his address to the shareholders, and his remarks are worth quoting for they have significance for New Zealand, lor our conditions though not quite so had as in Australia are drifting that way. Mr Buckland said: “Our borrowing policies in the past have contributed materially to our unemployed problem. The scale of borrowing has meant inflation, with rising prices and disordered trade.

With our arbitrary system of wage fixing tliis policy meant higher and yet still higher wages. We cannot have continual and general rises in wages and keep the costs of production within economic limits.” Those remark!- are applicable to the Dominion, for we have been borrowing, and wages are inflated, and unless we readjust matters we will .suffer. Continuing, Mr Buckland said: “ We must realise now that the wastes of war and unproductive expenditure can only he made good by greater effort. There is no other way out. Expedients such as borrowing to provide employment, inflation oi the note issue, or the maintenance of high prices by fixing money wages or restricting output will lead us to harder times and greater difficulties. Expenditure must he reduced. Are we able to keep up artificial rates of wages and working restrictions the while repeated applications to the courts show that real wages, that is purchasing power, do not follow them. Is it sound to follow the doctrine of high wages lor some while others cannot find employment al that figure? Is it not better ior all to work on a lower nominal wage?” The crux of the problem is touched in those few words, and it is evident that even in Australia the process of deflation has begun. The agreement with the coalminers of New South Wales is an indication of this. The miners have agreed to a reduction of wages and not to restrict the output of coal. This must have a far-reaching effect and other industries should he able to readjust the costs of production. The millers having recovered sanity, the “ loaders ” are likely to find the situation somewhat unhealthy. There arc hound to he recriminations and reprisals.