Some stock splits bring joy, but the outlook is restrained

Call it a late Christmas present. Many investors received news of a dividend increase or stock split last week. Within the past week, for example, Mobil Oil, Exxon, Standard Oil of California, Ensearch, Alcoa, and Santa Fe Industries have announced stock splits. US Steel, Westinghouse, Arco, and Southern Railway and Norfolk & Western, both merger partners, have announced dividend increases.

However, the outlook for the rest of the year for dividend hikes is a little more restrained, says Monte Gordon, director of research at the Dreyfus Corporation. "I would suspect 1981 will be about comparable to 1980," he states , adding, "Last year was not as good as 1979."

Mr. Gordon says that corporations will probably "be a little tentative in the first half until they see what the economy is going to look like. If you don't see a significant recession, we could see a little bit bolder action in 1981."

Standard & Poor's Corporation in its publication "The Outlook" elaborates, noting, "Corporate directors -- concerned about the flagging economy, the high cost and possible scarcity of credit, and the adequacy of internally generated funds for financing new plant and equipment -- are voting fewer and fewer dividend hikes." Still, the publication notes that corporations are aware that "liberalization of payments can stir market interest in an issue, particularly in a climate, such as now exists, of generally increasing caution with regard to dividends."

When a stock is split, it sometimes results in a period of weakness for the issue afterward.

William M. LeFevre, vice-president for investment strategy at Purcell, Graham & Co., says that investors sell the extra shares they receive in an effort to keep their portfolio balanced or to diversify their holdings. He recalls that after IBM completed a 4-for-1 stock split, the stock was under terrific pressure for over a year.

"There is no doubt," he says, "it can add a lot of selling pressure to the stock."

This year, within the Dow Jones industrial average, there have been three stock splits: Alcoa, Exxon, and Standard Oil of California. But even with the splits and announced dividend increases, the Dow average is only yielding 5.8 percent. Mr. LeFevre states, "I know that's not very attractive compared to the 17 percent offered by the money market funds, but with the Dow selling at 7.6 times earnings, I think we are at the low end of a trading range."

Can municipal bond funds write overdrafts?

Investors in municipal bond unit trusts have been surprised to find out they can. It seems that most municipalities pay interest on their bonds every six months but the funds pay their shareholders every month. Thus, there are months when the funds come up short, or even with a surplus. However, according to Michael Dayhood, a vice-president of Smith Barney Harris Upham & Co., the debits and credits all even out in the course of a year.

"The overdrafts," he says, "are figured into the front-end cost of the fund that investors pay when they buy them."

Last week we singled out the Steadman Federal Securities Funds for its dismal performance in the money market business. Steadman, it turns out, was not the only fund that gambled interest rates would be turning down last year.

Fred Henning Jr., vice-president at Fidelity Management & Research Company, based in Boston, admits that Fidelity, too, blew it. Although Fidelity did not quite miss the market as badly as Steadman did (Steadman was yielding only 10.2 percent last week), the Fidelity Daily Income Fund was yielding 13 percent a month ago when the average yield was 14.83 percent. Since then, Fidelity's yield has been rising and now is 16.9 percent for seven days and 16 percent for 30 days. The average yield, according to Donoghue's Money Fund Report of Jan. 26 was 17.43 for seven days and 17.23 for 30 days Mr. Henning says the fund soon will have a yield that is more competitive since its mistakes of six months ago are now maturing.

As for the future, he expects downward pressure on interest rates to be maintained through the first two quarters. Thus, he is buying certificates maturing in 30 to 90 days, hoping to lock in some of the high yields. He believes rates will not drop below double-digit levels and will creep back up later in the year. "It's difficult to forecast this year," he concludes, "because there are a lot of uncertainties about the new administration."

Stock prices were firmer last week, helping to ameliorate the slide during the month of January. For the week, the Dow average closed at 947.27, up 7.08. For the month of January, the Dow is down about 50 points, or 1 to 2 percent.

In the news background, the prime rate fell to 19 1/2 percent and President Reagan announced more budget-cutting plans. Blue chips were active and higher. US Steel jumped ahead after it reported sharply higher earnings and increased its dividend. Other winners included Blue Bell, the jeans manufacturer, which was the subject of a tender offer, and Bendix, which made an offer for its own stock.

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