Guarantor: Pennsylvania R. R. Co. Philadelphia, Germantown & Norristown R. R. Co., 12% Stock.

Guarantor: Philadelphia & Reading Ry. Co. Pittsburgh, Bessemer & Lake Erie R. R. Co., 6% Pfd. Stock. Pittsburgh, Bessemer & Lake Erie R. R. Co., 3% Common Stock.

Guarantor: Bessemer & Lake Erie R. R. Co. and Carnegie Steel Co. Pittsburgh, Fort Wayne & Chicago Ry. Co., Original 7% Stock. Pittsburgh, Fort Wayne & Chicago Ry. Co., Special 7% Stock.

Guarantor: Pennsylvania Railroad Co. (Pennsylvania Co.). Pittsburgh, McKeesport & Youghiogheny R. R. Co., 6% Stock.

Guarantor: Pittsburgh & Lake Erie R. R. Co. and Lake Shore & Michigan Southern Ry. Co. Pittsburgh, Youngstown & Ashtabula Ry. Co., 7% Pfd. Stock.

Guarantor: Pennsylvania Co. Portland & Ogdensburg Ry. Co., 2% Stock.

Guarantor: Maine Central R. R. Co. Providence & Worcester R. R. Co., 10% Stock.

Guarantor: New York, New Haven & Hartford R. R. Co. Rensselaer & Saratoga R. R., 8% Stock.

Guarantor: Delaware & Hudson Co. Rochester & Genesee Valley R. R. Co., 6% Stock.

Guarantor: Erie R. R. Co. Rome & Clinton R. R. Co., 6⅛% Stock.

Guarantor: Delaware & Hudson Co. Rutland & Whitehall R. R. Co., 6% Stock.

Guarantor: Delaware & Hudson Co. St. Joseph, South Bend & Southern R. R. Co., 5% Pfd. Stock. St. Joseph, South Bend & Southern R. R. Co., 3% Common Stock.

Guarantor: Michigan Central R. R. Co. St Louis Bridge Co., 1st Pfd. 6% Stock. St. Louis Bridge Co., 2nd Pfd. 3% Stock.

Guarantor: Terminal R. R. Association of St. Louis. Saratoga & Schenectady R. R. Co., 7% Stock.

Guarantor: Delaware & Hudson Co. Sharon Ry. Co. 6% Stock.

Guarantor: Erie R. R. Co. Sixth Avenue R. R. Co., 7% Stock.

Guarantor: New York Railways Co. Southern and Atlantic Telegraph Co., 5% Stock.

Guarantor: Western Union Telegraph Co. Southwestern R. R. Co. (of Georgia), 5% Stock.

Guarantor: Central of Georgia Ry. Co. Syracuse, Binghamton & New York R. R. Co., 12% Stock.

Guarantor: Delaware, Lackawanna & Western R. R. Co. Troy & Bennington R. R. Co., 10% Stock.

Guarantor: Boston & Maine R. R. Co. Troy & Greenbush R. R. Association, 7% Stock.

Guarantor: New York Central & Hudson River R. R. Co. Tunnel R. R. Co. of St Louis, 6% Stock.

Guarantor: Terminal R. R. Association of St. Louis. Twenty-third Street Ry. Co., 18% Stock.

Guarantor: New York Railways Co. United New Jersey R. R. and Canal Co., 10% Stock.

Guarantor: Pennsylvania R. R. Co. Utica, Chenango & Susquehanna Valley R. R. Co., 6% Stock.

Guarantor: Delaware, Lackawanna & Western R. R. Co. Utica, Clinton & Binghamton R. R. Co., 5% Debenture Stock. Utica, Clinton & Binghamton R. R. Co., 3%% Common Stock.

Guarantor: Delaware & Hudson Co. Valley R. R. Co. of New York, 5% Stock.

Guarantor: Delaware, Lackawanna & Western R. R. Co. Vermont & Massachusetts R. R. Co., 6% Stock.

Guarantor: Boston & Maine R. R. Co. Warren R. R. Co., 7% Stock.

Guarantor: Delaware, Lackawanna & Western R. R. Co.

Quite naturally these guaranteed stocks as an investment are graded according to the importance which the properties have to the corporations leasing them and also with respect to the financial strength of the guarantors. With such financially powerful corporations as the Pennsylvania and the Lackawanna, the stocks of leased lines whose dividends they guarantee grade as high in conservative investment circles as do their best mortgage bonds. That is why these stocks sell at a stiff premium. The dividends guaranteed on some of these leased lines' stocks run as high as 12 per cent to 16 per cent per annum, but they command prices which reduce their net yield close to 4 per cent per annum. The holders of these securities, whether estates, banks, life insurance companies, or individual investors, are not anxious to dispose of them, as they fully realize the intrinsic value of their investments. The more closely such guaranteed stocks are held, the more it reflects the superior position accorded them in financial circles.

There are leased-line guaranteed stocks which could be safely regarded as immune even from the severest panic. Their impregnable position is due entirely to the fact that they could not be abandoned without dismembering an important system, a thing which the owners of securities amounting to millions would not permit under any circumstances.

Railroads enter largely into the policy of absorbing other roads by means of leases. Sometimes the object is the elimination of competition. At other times one road will acquire control of another to keep an important rival from gaining an entrance into a certain territory. Again the reason may be simply that the lease is profitable.

The shrewd people back of the Canadian Pacific had plans to get into Chicago. To build a road to the important traffic-originating centers would prove a costly bit of financing, and even then it would remain a serious problem whether a new line could earn its board. Therefore, when the Wisconsin Central was in the market, the Canadian Pacific saw an opportunity to reach Chicago without great expense, by leasing this property, in return for which it guaranteed a small dividend on the road's preferred stock.

In the expansion of our railroads, the practice of absorbing, by lease, important roads with which an alliance would be profitable will go on steadily. With the growth of traffic on these leased lines, their business frequently turns into the treasury of the controlling road a good profit, as they are entitled to the revenues in excess of what is required for the dividends they guarantee.

As the earnings of the leased lines are included in the earnings of the controlling lines, there is no way of determining what is their actual income return. But in this the investor is not actually interested, as long as the guarantors make good their guaranty. It is realized that they cannot default in the payment of the dividends without losing control of the property, a thing that they wish to guard against.

Industrial corporations also guarantee the dividends of rivals they have absorbed. Their guaranteed stocks should be judged by the margin of profits reported in the annual statements. In this manner their security as investments can be properly appraised.

Guaranteed Stocks. Test Questions

1. What is the nature of guaranteed stock?

2. What are the investment merits of guaranteed stock?

3. How did railroad guaranteed stock come into existence?

4. Give an instance where railroad expansion took place by this method.

5. How is the investment value of guaranteed stock determined?