LETTER OF SUBMITTAL
Feperar Trape ComMISSION,
Washington, December 6, 1927.
The PRESIDENT OF THE SENATE.
Str: I have the honor to submit herewith a report ot the Federal
Trade Commission on stock dividends, made in response to Senate
Resolution No. 304, Sixty-ninth Congress, second session, approved
December 22, 1926.
In compliance with this resolution the report presents the names,
capitalization, and stock dividends of 10,245 corporations paying
stock dividends since the decision of the Supreme Court of the United
States that such dividends were not taxable to shareholders (Eisner
v. Macomber, 252 U. S. 189). These were all the corporations paying
stock dividends subsequent to the decision from which the commis-
sion was able to procure reports which could be thus tabulated.
While the commission tabulated returns from over 10,000 corpora-
tions, the names of a large proportion of the companies requested to
furnish reports were obtained from Treasury Department records
relating to stock dividends in recent years only, and for this and
other reasons not all of the returns were suitable for a statistical com-
parison to show the trend of business policy. Taking 2,971 corpora-
tions which were strictly comparable not only for dividends but also
for capitalization and surplus for 14 years, the absolute increase in
stock dividends in the period 1920 to 1926 over that of 1913 to 1919
may be computed at about 476 per cent for those corporations paying
a stock dividend at any time within the 14 years in question. The
absolute increase in cash dividends for these same corporations was
only 73 per cent. In the later period these 2,971 corporations dis-
tributed $2,350,000,000 in stock dividends. This was equivalent
to about 28 per cent of the total surplus available for distribution
and to about 42 per cent of the total surplus attributable to the seven
years in question. In the earlier seven years, 1913-1919, only
$408,000,000 were distributed in stock, or a little over 8 per cent of
the total surplus available for distribution and the equivalent of less
than 11 per cent of the total surplus attributable to the period.
In the first.seven years nearly $1,800,000,000, or the equivalent
of 45.14 per cent of the surplus attributable to the period for these
2,971 companies, were retained undistributed in the business; in the
second seven years only $317,000,000, or 5.69 per cent. The probable
reasons for the difference between the two periods, as explained in
detail in the report, are the heavy reinvestments of earnings in prop-
erty in both periods which were not capitalized until after the decision
in Eisner ». Macomber. During the earlier period it was uncertain
whether stock dividends were taxable or not, and the fear of such
taxation which would have especially affected large stockholders
Si ect to high surtaxes was probably a potent reason for not issuing
them.
