STUDIES IN SECURITIES

Northern Pacific Ry.

Evidently, upon a 1926 showing of the best results from company
operation since 1917, Northern Pacific Ry. with 1925 ended eight
years of difficulties though never deficits. By reducing the dividend
 after nearly eighteen years at 7% to 5% in 1922 the company
 was able to keep on adding to surplus each year.
As against a total $24,800,000 dividend curtailment, 29% annually
for five years, a total $81,650,000 was expended on the property
since 1917 which can be accounted for as follows: (1) $35,742,
000 surplus income including $9,980,000 Government help 1918-1920
 and $12,451,000 special dividend from the jointly-owned
“Burlington’’ in 1921, (2) $12,554,000 receipts from land sale,
and (3) $32,127,000 added through operating expenses to equipment
 depreciation fund. Actually there was $817,500 decrease in
funded debt apart from issuance of $8,384,000 additional bonds
in 1921 to refund the Burlington stock purchase debt which supports
 itself with $1,448,000 annually over.

From these figures obviously the road was not only fully preserved
 but further improved in the years of blight and the earnings
 now to compare with pre-war must include a return upon
the $80,000,000 interim property additions. The company reported
earnings return on railway property investment 6.4% in 1916
and 5.8% in 1917 but below 4% since 1918 and 3.5% average
1922-1926. Thanks to the invested surplus, however, the earnings
on Northern Pacific stock, compared with 10.9% in 1916 and 11.9%
(including Burlington extra dividend equal to 2.2%) in 1017,
were 8.9% (including Burlington extra equal to 5%) in 1921,
6.1% in 1922, 5.2% in 1923, 6.4% in 1924, 7.2% in 1925, and
8.5% in 1926. Up to 1917 for eleven years the net averaged 9%
with the least 7.6% in 1914-15. With capitalization $319,481,000
bonds and $248,000,000 or 44% stock a small margin in earnings
percentage over dividend rate represents a conservative saving
for surplus.

Integrity of the $187,852,000 surplus, giving $175 book value for
the stock, is checked by Government valuation of physical property,
 and this is with $83,017,900 Burlington stock carried at 119
paying 10% and earning 14%.
Thriftily, the Northern Pacific has still conserved the possessions
of its subsidiary Northwestern Improvement Co., taking in dividends
 only a small part of accumulating earnings from coal, ore,
and lumber activities. Liands owned by the railroad in 1926 were
5,582,000 acres valued at about $1.50 per acre and around 15%
1591