Common Stock Investing: Three Things To Look For Before Choosing A Stock

Three important matters deserve investigation as a safeguard before a stock is chosen for investment: (a) what proportion of total capitalization is in bonds and/or preferred stock (optimum no greater than 70 per cent); (b) how many times are such fixed charges earned (optimum three or better); (c) what percentage of total revenues is actually brought down to the common stock after allowing for all prior obligations?

This last is to make certain that fixed charges will not eat up the available revenue and leave little or nothing for the common; a minimum figure in the neighborhood of 10 to 12 per cent is desirable. Should the investor be unable to determine these important factors, then he should appeal to his broker or investment counsel for such information; to overlook them would be to court future disaster.

The regular and rather dependable earnings of the public utilities will allow for regular dividends, which, on an over-all basis, may amount to a considerable percentage of earnings. Naturally, generous dividends will be very acceptable to the stockholder and these, coupled with the promise of continued steady earnings, have placed such utility shares in constant demand.