The three classes of stocks which I have dealt with - namely, Debenture, Guaranteed and Preference, and Ordinary - form the great bulk of the railway capital; but there are several others which you will find mentioned in the Share List, such as Lien Stocks. These are generally issued as the result of the absorption of a smaller by a larger railway. In such cases the shareholders of the company which is taken over are generally guaranteed a fixed rate of interest on their stock by the absorbing company, while they retain their security over their original property. The largest of these lien stocks is the North British Consolidated Lien Stock, which is made up of the stock given to the shareholders of various lines now merged in the North British in exchange for their holdings. The original lien stocks bore 4 per cent interest and possessed liens on the specific railways, stations, etc, taken over by the company; but in 1895 these partial liens were terminated, and in their place they received a lien upon the general undertaking of the company. The stock at the same time was converted from a 4 to a 3 per cent stock, each holder of £100 of the old receiving £133, 6s. 8d. of the new stock.

You will also find the stocks of leased railways in the Share List. This class is somewhat similar to the lien stocks, but differs in respect that the smaller lines, instead of being absorbed, are still allowed a nominal existence, the absorbing railway leasing the line for a period generally equivalent to perpetuity instead of purchasing it outright. For instance, the London and Blackwall Railway (a line of about seven miles in length from Fenchurch Street Station in London to Blackwall and Millwall Docks) is leased to the Great Eastern Company for a period of 999 years from 1st January 1866 at a net annual rental of 4 1/2 per cent on the ordinary capital of the company, and all preferential engagements being adopted by the lessees, - an arrangement which amounts practically to the absorption of the smaller by the larger company.

You will find several railways in the List which are worked by other companies, but where the lease does not provide an absolute guaranteed dividend, such as the Callander and Oban and the Lanarkshire and Dumbartonshire Railways. Both of these are worked by the Caledonian Railway, which, in the case of the Callander and Oban line, supplies the plant and works the line in perpetuity at cost price, but does not give any guarantee as to dividend; and in the case of the Lanarkshire and Dumbartonshire, works and maintains the line in perpetuity for 50 per cent of the gross receipts, and contributes certain mileage receipts accruing to it towards making up the dividends on the share capital to 4 per cent, in so far as such receipts are sufficient for the purpose. This latter condition reminds me to warn you that it is necessary, when considering the purchase of stock of such subsidiary railways, to look carefully into the exact nature of the guarantee given by the principal company. A superficial reading of the undertaking might lead one to imagine that the arrangement was equivalent to a guarantee by the Caledonian Railway of 4 per cent on the capital of the Lanarkshire and Dumbartonshire; but if the terms are carefully scrutinised, it is seen that the guarantee is a qualified one.

With this preliminary explanation of the classes into which the securities of the British railways are divided, I propose to turn shortly to their financial position. It is impossible to refer to all the railways, so I have selected twelve - eleven of the largest in the United Kingdom, whose capital, including loans and debenture stock, exceed in each case the sum of 40 millions sterling, and for the twelfth the Glasgow and South-Western. Its capital is about 23 millions only, but you will probably wish to see how its figures compare with the others. The following table shows for each of the twelve railways - (1) the total capital, including debenture, preference, and ordinary stock; (2) the ordinary stock (for the purposes of comparison the figures for the railways which have divided their ordinary stock into preferred and deferred ordinary are entered in the table at the amount corresponding to what it would have been if the stock had not been divided); (3) the net profit earned in the year 1902; (4) the amount spent in dividend on the ordinary stock (including both preferred and deferred ordinary) for the year 1902; and (5) the percentage which the amount spent in dividend bears to the net profits for the year.

Statement Of (1) Capital; (2) Net Profit; And (3) Dividends Declared On Ordinary Stock Of Twelve British Railways For The Year 1902

The interest on all the debenture and guaranteed stocks of these railways may be said to be amply secured, and that this is the general impression may be seen from the prices which they fetch on the Stock Exchange. They are all included in the Trustee Investment List (except those of the Great Central, which is absent from the list of both England and Scotland).

The majority of the preference stocks of almost all these railways may also be called gilt-edged; but there are exceptions, and more discrimination is required. If you wish security of the highest class you will naturally choose debenture or guaranteed stocks; but the rate of interest these yield is comparatively small, and you may wish a better return for your money. The problem then will be to select a preference stock which will prove a sound investment. You should limit your purchases to those securities where your judgment, after careful investigation, confirms the recommendation which you will receive from your stockbroker.