State of Business, Savings & Loan: Waiting for the Mailman

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STATE OF BUSINESS

It has been a good year for widows and orphans — and the other millions of Americans who regularly look in their mails for that tangible token of people's capitalism: the dividend check. With corporate profits running at record highs, the U.S.'s 17 million stockholders have watched expectantly to see what firms would share their prosperity by increasing dividends. Last week's cliffhanger was giant A.T. & T., which kept 2,200,000 shareholders agonizing while its 18 directors debated behind closed doors whether to raise the 900 quarterly dividend of the world's largest utility. A.T. & T.'s directors decided against a raise now — but enough other U.S. companies have declared increases to make this a record year.

In the year's first half, intricate electronic systems and toiling clerks dispatched to the big and little shareowners of U.S. companies $7.5 billion in payments, 5.4% more than last year. According to Standard & Poor's statisticians, 740 U.S. corporations had raised their dividends by the end of July, 141 more than in 1962. Much as this flurry of generosity pleased shareholders, it raised among businessmen and econo mists an oft-debated question: How much of its earnings should industry share with its stockholders?

Rearguard Action. On the average, U.S. corporations pass out nearly two-thirds of their profits to shareholders. To many businessmen, this seems too much; they contend that firms often give out money that really should be used to expand and improve operations."There are some companies paying out dividends that would actually be showing no profit at all if they were making the proper set-aside for depreciation of their facilities," says Charles B. ("Tex") Thornton, chairman of California's fast-rising Litton Industries. Litton has never in its ten-year history declared a cash dividend, preferring—as many other companies do—to hand out additional shares of stock to its shareholders and to use the retained earnings for expansion and modernization.

Growth-conscious Wall Street also puts dividend payments second in importance to earnings in appraising a company, but this idea is harder to sell to stockholders—particularly the smaller investor who tends to put his money into blue chips. Many corporate managers are still convinced that their little stockholders want and deserve those regular checks. "Shareholders are businessmen too," says President William G. Stewart of Universal-Cyclops Steel Corp., "and they're entitled to a reasonable return on investment—or there won't be any investment." Just about everyone agrees that companies should be sure that they can sustain a dividend increase—or should not declare one at all. Shareholders usually take a dim view of managements that later cut dividends.