S&P Global and MSCI are making some major changes in the GICS sectors which will be enacted at the end of September.  Under the old GICS, Telecommunications was one of the 11 GICS sectors which included primarily telephone companies.  S&P Global and MSCI are changing the Telecommunications Sector to the Communications sector which includes not only Telecommunication Services, but Media and Entertainment stocks, which includes Advertising, Broadcasting, Cable & Satellite, Publishing, Movies and Entertainment, Interactive Home Entertainment and Interactive Media Services. The most significant impact of these changes is that two companies that formerly were part of the Information Technology sector, Alphabet and Facebook, will be moved over to the Communications sector while Amazon has become part of the Consumer Discretionary sector since it is classified in the Internet & Direct Marketing Retail sub-industry.  Although this leaves Apple and Microsoft in the Information Technology sector, this change has dramatically reduced the size of the Information Technology sector in the GICS.  At the end of August 2018, the Information Technology sector represented 26% of the market cap of the S&P 500 while Telecommunications represented only 2%.  These changes have turned the conservative, high-yielding Telecommunications sector into the high growth, low-yielding Communications sector. This reorganization of the GICS sector will balance out the two sectors by market cap more evenly. This raises the questions, however, as to how the Media & Entertainment market cap of the new Communications sector has grown over time.  Global Financial Data has data on the American stock market going back to 1791 and has classified all of the stocks traded on American exchanges over the past 225 years by GICS and sector. We have been able to calculate how the Media & Entertainment stocks have grown within the Communications sector over the past 150 years. The graph below illustrates these changes. As the chart shows, up until around 1960, telecommunications represented around 80-90% of the total communications sector.  Not surprisingly, the period when the communication stocks represented the largest portion of total market cap was in the 1920s when the bull market drove up the valuation of entertainment stocks, only to see their values collapse after the 1929 crash when the bull market came to an end. The growth of the Media & Entertainment sector has been steady since 1965, increasing from 10% of the Communications sector in 1965 to 80% in 2018.  One would think that the explosion of the internet in the 1990s would have created a break in this series, but this isn’t the case.  The growth in Media & Entertainment has been steady over the past 50 years.  You can see how the breakup of AT&T in 1983 and the telecommunications revolution that followed favored the Telecommunications industry for a few years, but this only delayed the inevitable growth in Media & Entertainment. The basic criticism of creating the Communications sector out of the Telecommunications and Media & Entertainment is that combining these two industries into the Communications sector is like mixing apples and oranges.  The Telecommunications sector is more like the Utilities sector, including high-yielding stocks with limited growth potential while the Communications sector includes two of the fastest growing companies on the planet, Alphabet and Facebook, as well as the potential for further growth from other sectors within the Media & Entertainment industry. The growth of Media & Entertainment has been a continuous process over the past 50 years.  It is not a recent phenomenon. On the other hand, if you compare the market cap of the Utilities and Telecommunications sector there has been an amazing long-term stability between the two as is illustrated below. Telecommunications has represented 40% to 50% of the Utilities and Telecommunications in most of the years since 1880.  There were exceptions, such as the 1920s when Utilities were the fastest growing sector in the economy and the 1990s when the Telecommunications Revolution exploded, but the 40-50% range has dominated the relationship between the two sectors for the past 125 years.  Contrast this with the growth in the Media & Communications relative to Telecommunication Services that has occurred during the past 50 years.  Combining Utilities and Telecommunications into a single sector and allowing Communications to be a sector unto itself appears to be the logical conclusion of analyzing the long-term trends of these sectors. To us, the logical rearrangement would have been to create the Communications sector as a new sector, and add the Telecommunications sector into the Utilities to create a Utilities & Telecommunications sector.  There are four sectors in the S&P 500 that represented less than 3% of the total market cap in August 2018, Materials (2.49%), Real Estate (2.70%), Telecommunication Services (2.00%) and Utilities (2.88%).  GFD’s Transportation sector represents 2.23% of the S&P 500 market cap. By combining the Utilities and Telecommunications sectors into a single entity, it would now represent 4.88% of the S&P 500 market cap the reduced Communications sector would represent about 10%.  This would resolve the inherent conflict between a rapidly growing Media & Entertainment division within Communications and the low-growth Telecommunications sector. For this reason, Global Financial Data is making this change in its sectors.  Communications is a sector unto itself that excludes Telecommunication Services and the Telecommunication Services is now part of the Utilities & Telecommunications Sector. We invite your comments on these changes.

With Jack Ma predicting that the trade wars between the United States and China could go on for another 20 years, Global Financial Data has added data on tariffs so our customers can analyze tariffs between countries and over time.  With Donald Trump using tariffs as his primary weapon in his global trade wars, it is important to understand what tariff rates are throughout the world. GFD has collected data from the World Bank covering over 2800 series on tariffs from every country in the world.  The data include tariff rates for primary products, manufactured products and all products.  It includes data on both the average tariff rates for countries as well as the most favored nation rates. The data begins in 1988 and extends up to 2016. GFD has also collected data on U.S. tariffs going back to 1790 as the chart below shows. The graph tells an interesting story of the United States.  The Tariff of 1789 was passed to generate revenues for the federal government, so rates remained high for the next 100 years to fund the government.  Tariffs represented over 80% of federal government revenues between 1790 and 1860.  The Tariff of 1789 set American tariffs at a flat 5%.  The rate rose to around 12.5% by 1810 and doubled to 25% in 1812, increased to 35% in 1816 and to 40% by 1820. Alexander Hamilton and others used the infant industry argument, that tariffs could be used to protect young industries from competition until they matured, to justify the protection of American industry. Before World War I, the United States had one of the highest tariffs in the world.  There was a brief period in which tariffs were lowered between 1846 and 1861 as a result of passing the Walker tariff in 1846 and the Tariff of 1857 which lowered the rate to 18%. However, the Morris Tariff, signed by James Buchanan in March 1861 raised tariff rates once again. It should be remembered that the North and South strongly disagreed on the issue of tariffs.  The South was generally opposed to tariffs while the North favored tariffs to protect northern industry. Abraham Lincoln called himself a “Henry Clay tariff Whig” and in 1847 declared “Give us a protective tariff, and we shall have the greatest nation on the earth.” After the Civil War, the Republicans protected American industry with a wall of tariffs. The issue of tariffs was one of the principal issues the nation argued about in the 1890s and 1900s.  It was primarily because of the introduction of the income tax in 1913 that the Underwood Tariff was able to lower rates. In 1915, tariffs represented 30% of federal government revenues. The Smoot-Hawley Tariff, though almost universally opposed by economists, contributed to the shrinkage of trade during the Great Depression. After World War II, the United States promoted trade liberalization in order to increase economic growth and economic integration.  The General Agreement on Tariffs and Trade (GATT) was established in 1947 and went through several rounds insuring that all countries lowered tariffs simultaneously.  NAFTA created freer trade between the United States, Canada and Mexico in 1994.  GATT morphed into the World Trade Organization in 1995 and the European Union worked to eliminate internal trade barriers between member countries. In 2000, China joined the World Trade Organization. Consequently, tariff rates have dropped to historically low levels throughout the world and globalization has enabled billions to leave poverty behind forever.  Most economists are opposed to Donald Trump’s support of using tariffs to fight trade wars with the rest of the world.  Now you can use data from GFD to analyze historical trends in tariffs throughout the world. If you would like a list of the Global Financial Data’s series on tariffs, please feel free to call Global Financial Data today to speak to one of our sales representatives at 877-DATA-999 or 949-542-4200.

The Vereenigde Oost-Indische Compagnie (VOC), or the United East India Company, was not only the first multinational corporation to exist, but also probably the largest corporation in size in history. The company existed for almost 200 years, from its founding in 1602, when the States-General of the Netherlands granted it a 21-year monopoly over Dutch operations in Asia, until its demise in 1796. During those two centuries, the VOC sent almost a million people to Asia, more than the rest of Europe combined. It commanded almost 5,000 ships and enjoyed huge profits from its spice trade. The VOC was larger than some countries. In part, because of the VOC, Amsterdam remained the financial center of capitalism for two centuries. Not only did the VOC transform the world, but it transformed financial markets as well.  

The United East India Company Takes Over Asian Trade

The foundations of the VOC were laid when the Dutch began to challenge the Portuguese monopoly in East Asia in the 1590s. These ventures were quite successful. Some ships returned a 400 percent profit, and investors wanted more. Before the establishment of the VOC in 1602, individual ships were funded by merchants as limited partnerships that ceased to exist when the ships returned. Merchants would invest in several ships at a time so that if one failed to return, they weren’t wiped out. The establishment of the VOC allowed hundreds of ships to be funded simultaneously by hundreds of investors to minimize risk. The English founded the East India Company in 1600, and the Dutch followed in 1602 by founding the Vereenigde Oost-Indische Compagnie. The charter of the new company empowered it to build forts, maintain armies, and conclude treaties with Asian rulers. The VOC was the original military-industrial complex. The VOC quickly spread throughout Asia. Not only did the VOC establish itself in Jakarta and the rest of the Dutch East Indies (now Indonesia), but it established itself in Japan, being the only foreign company allowed to trade in Japan. The company traded along the Malabar Coast in India, removing the Portuguese, traded in Sri Lanka, at the Cape of Good Hope in South Africa, and throughout Asia. The company was highly successful until the 1670s when the VOC lost its post in Taiwan and faced more competition from the English and other colonial powers. Profits continued, but the VOC had to switch to traded goods with lower margins. They were able to do this because interest rates had fallen during the 1600s. In the 1600s and 1700s, the Dutch had the lowest cost of capital in the world. This was because of an innovative idea: if you pay back your loans, your creditors will reward you with a lower interest rate in the future. This wasn’t the way Spain, France, and other kings looked at borrowing money. They often defaulted, and their interest rates remained high. As a result of Dutch fiscal rectitude, the yield on Dutch government bonds fell from 20 percent in 1517 to 8.5 percent by 1600 and to 4 percent by 1700. The Dutch had the lowest interest rates in the world at that time. This pushed the Dutch to invest not only in joint-stock companies, such as the VOC, but in foreign government debt, helping to fund the American Revolution. Another interesting aspect of the VOC was its dividend policy. Some of the dividends were paid in kind, rather than in money, and the dividends varied widely as the table below indicates. The dividend averaged around 18 percent of capital over the course of the company’s 200-year existence, but no dividends were paid after 1782. The VOC provided a high return to investors, but not always in the way shareholders wanted. The VOC basically unloaded its surplus inventories on shareholders in some years, providing them with produce, cloves, spices, or bonds. Some shareholders refused to accept them. Obviously, shareholders want money, not goods, and the three British companies, Bank of England, East India Company, and South Sea Company, learned from this and only paid cash dividends during the 1700s. The average dividends of 20–30 percent of capital were high, but since the price of shares traded around 400 during most of the company’s existence, as the figure below shows the actual dividend yield was around 3-6 percent, better than Dutch bonds, but less than bonds from “emerging market” countries, such as Russia or Sweden.  

Dutch East India Stock Dividend Yield, 1650 to 1795

  As the chart below shows, shares started at 100 in 1602, moved up to 200 by 1607, suffered a bear raid in 1609, moved up to the 400 range in the 1630s, fluctuated as the fortune of the company changed from year to year, participated in the bubble of the 1720s when shares exceeded 1,000, fell back to 600, rallied to 800 in the 1730s, then slowly declined from there. Perhaps no better indicator of the Dutch economy, or the global economy, prior to 1800 exists.  

The Impact on the Amsterdam Stock Exchange

The VOC also transformed the Amsterdam Stock Exchange, causing a number of innovations to be introduced, such as futures contracts, options, short selling, and even the first bear raid. Isaac le Maire was the largest shareholder of the VOC in its early years, and he initiated the first bear raid in stock history, selling shares of VOC short in order to buy them back at a profit. These actions also led to the first government regulation of stock markets, attempting to ban short selling in 1621, 1623, 1624, 1630, and 1632, as well as banning options and other forms of financial wizardry. The fact that these laws had to be passed so many times shows that these regulations were not that effective. One problem for the long-term success of the Amsterdam Stock Exchange was that the VOC and the West Indies Company (WIC) were the only shares of importance that traded on the Amsterdam Stock Exchange. Between 1600 and 1800, no new large companies listed in Amsterdam. Although Dutch fiscal rectitude kept debt and interest rates low, it also helped stifle the growth of the Amsterdam Stock Exchange because government bonds never became a prominent part of the trading on the exchange. Due to the decentralized political nature of the Netherlands, government debt was held locally. There was no large centralized national debt as in France and England, and ultimately, this inhibited the growth of the Amsterdam Stock Exchange. The Netherlands was as decentralized as France was centralized. Because the VOC and WIC so dominated the share market, the company didn’t issue new shares to raise capital. Dutch debt was so small and diversified among its cities that the Dutch invested in foreign debt to find an outlet for their capital. Dutch newspapers of the 1700s often listed the prices of French debt in Paris as well as British Consols, Bank of England stock, the British East India Company and South Sea Company stock in London, but no other debt or equity from Amsterdam was listed. With the exception of colonial trade, until the 1800s no capitalist enterprise required the levels of capital of the VOC and WIC. So the Dutch capital that was available went into debt, not equity. America went to Amsterdam to raise capital, as did Sweden, France, England, Russia, Saxony, Denmark, Austria, and other countries. This provided Dutch investors with higher returns, but didn’t develop the Dutch economy in the way it could have. Unfortunately, the profitability of the Dutch East India Company was highly erratic as the chart below shows (there were 2.5 Guilder to 1 U.S. Dollar). Although there were many years when the VOC was profitable, there were also numerous years when the company lost money, and yet it still paid a dividend in most years, draining the capital of the company and forcing the VOC to take on more and more debt. The death knell of the company came in the 1770s and 1780s when the Fourth Anglo-Dutch War of 1780-1784 devastated the company’s finance.  The company never recovered and it suffered losses for the rest of its life.  The Netherlands were conquered by the French during the Napoleonic Wars and the company’s assets were seized by the British.  The VOC ceased to exist in 1796. Another factor that may have held the Amsterdam Exchange from expanding was the fact that shares could only be registered on a monthly or quarterly basis. The situation was different in London. Not only could British shares and debt be registered daily, but all of the shares were available for transfer. On the other hand, many VOC shares weren’t traded at all. The amount of British and French debt grew throughout the 1600s and 1700s, requiring new investors on a regular basis. Not only did the VOC’s capital remain constant, but centralized Dutch government debt didn’t exist until the late 1700s. Amsterdam failed to provide its investors with new opportunities.  

The Financial Capital of the World Shifts to London

Before the Industrial Revolution, companies were simply too small to require sufficient capital to be traded on exchanges. Shipping had long been a high-risk venture, providing high returns and high losses, and investors diversified their risk by putting their money in a number of different ships. The colonial trading companies of the 1600s and 1700s took financial capital to a different level, allowing thousands of people to invest in hundreds of shipping ventures, diversifying their risk. After the Napoleonic Wars, the center of global finance shifted from Amsterdam to London. Although this process was spread out over several decades, it is amazing that the center of global finance could move from Amsterdam to London so quickly and so easily. There were some things, mostly political, which Amsterdam had little control over, such as the Napoleonic Wars, their occupation by the French, and the loss of its colonies after the war. In retrospect, there were things the Dutch could have done to keep Amsterdam at the center of global finance after 1815, but the trend was inevitable. The Dutch failed to diversify away from VOC and WIC shares and allow other companies to take advantage of local capital markets; they failed to sufficiently develop the bond side of the market because there was no centralized government debt until the late 1700s; they failed to expand the capital of the VOC, but instead chose to borrow, adding to the debt load, which led to the bankruptcy of the VOC and WIC; the VOC and WIC did not sufficiently reinvest dividends for growth; and they failed to offer a large number of securities that encouraged trading as in London. The company failed to raise additional capital when necessary, to limit borrowing, or to fund capital expenditures by cutting its dividend. Since the Netherlands lacked a centralized debt issuer, as the French, British, and Russians did, the Amsterdam Stock Exchange faded in importance after the VOC and WIC collapsed. Foreign government bonds became more prominent in Amsterdam, but even the foreign government bond trading moved to London in the 1820s, where capital was more readily available. It is doubtful whether Amsterdam could have foreseen all the changes that happened, and perhaps they couldn’t have prevented the move of the world’s financial capital from Amsterdam to London that occurred after 1815, but it was a lesson London should have learned. London became the engine of global capitalism for the 19th century, only to lose its place to New York after World War I. The US should understand this lesson as well. The global center of finance must grow, innovate, and be as open as possible. Otherwise, the center will move to someplace that is.

Because of the breadth of data that Global Financial Data provides in its UK and US Stock Database, providing data from 1601 to 2018, GFD runs into problems of coverage that no other database encounters.  Today, stocks trade thousands or even millions of shares on a daily basis. Data on stock prices, shares outstanding and corporate actions are kept in exacting detail by the exchanges and by data providers and calculating indices poses few problems because computers can use their algorithms to spin out thousands of results on a daily basis.  Unfortunately, this was not always the case. In the 1800s, stock volume was often extremely low and many stocks did not trade over the course of an entire month.  The low volume day for the New York Stock Exchange was March 16, 1830 when only 31 shares traded on the entire exchange. Up until the 1870s, the New York Times was able to list every trade on the NYSE in each issue as did the London Times for stocks traded in London.  Today thousands of shares trade every nanosecond. To calculate price and return indices, you need three things, price data, corporate actions and shares outstanding. Global Financial Data has done everything it can to obtain as complete a record of prices, corporate actions and shares outstanding as is possible, but the further back you go in time, the more difficult it is to obtain this information.  

Sources for the Data

For the United Kingdom, the Course of the Exchange kept data on prices, shares outstanding and dividends from 1811 until the present.  Bradshaw’s Railway Manual was first published in 1848, The Investors Monthly Manual, published by The Economist, provided larger coverage of the London Stock Exchange than the Course of the Exchange and was published from 1864 until 1930, and the Stock Exchange Yearbook was first published in 1875.  In 1930, The Economist noted in The Investors Monthly Manual that it was ceasing publication because data on London stocks was readily available, especially since the Complete Stock Exchange Investment List was published on a monthly basis, but unfortunately, only a handful of libraries kept copies of the Investment List while dozens of libraries  kept copies of The Investors Monthly Manual. Nevertheless, between these books, continuous coverage of dividends and shares outstanding are available for the United Kingdom from 1811 to date. Unfortunately, because the United States hosted several regional exchanges and bank and insurance companies were listed over-the-counter, no comparable books exist for the United States in the 1800s. Poor introduced the American Railroad Journal in 1832 and the magazine began providing regular tables on the railroads in 1851.  Poor began publishing his Railroad Manuals in 1868 and continued publication until the company was bought out by Standard Statistics in 1941. William Buck Dana first published the Commercial and Financial Chronicle in 1865.  The goal of Dana was to make it an American version of The Economist. The weekly journal was preceded by Hunt’s Merchants Magazine and Commercial Review which was introduced in 1839, but stopped publication during the civil war. Our record of the U.S. stock market after the Civil War wouldn’t exist without Dana’s weekly journal.  The Investor’s Supplement, a monthly summary of the markets, was introduced in 1875 by Dana, and the Bank and Quotation Record replaced The Investor’s Supplement in 1928.  Each of these expanded the CFC’s stock coverage. The Manual of Statistics began publication in 1879, but the real growth in coverage came with the Moody’s Manual of Corporation Securities which covered thousands of industrial, transport and finance stocks beginning in 1900.  Although Poor’s Railroad Manuals and the Investor’s Supplements covered the primary industrial stocks that were listed on the New York Stock Exchange, Moody’s Manual became the first to cover the full spectrum of industrial stocks that were listed in the United States. Despite the introduction of all of these sources, there was no American equivalent to the British Course of the Exchange or the Investor’s Monthly Manual that provided complete coverage of share prices, dividends and shares outstanding in the United States during the 1800s.  Consequently, GFD has had to piece together these three important variables from an array of different sources.  The New York Stock Exchange was generally well covered by these publications and Joseph G. Martin’s A Century of Finance provided fairly complete coverage of the Boston Stock Exchange from 1798 to 1898, but other exchanges were less well covered.  

Corporate Actions Explained

The provision of cash dividends, stock dividends, stock splits and rights has changed dramatically over time and few people are aware of how GFD differentiates between these corporate actions and how they impact the total return to investors. For cash dividends, GFD has divided them into five types: Regular Cash Dividends, Extra Cash Dividends, Optional Cash Dividends, Special Cash Dividends and Liquidating Cash Dividends.  A regular cash dividend is paid, usually on a recurring basis, over the course of the year. Historically, both bonds and stocks received payments twice a year, but in the late 1800s, companies began making stock payments quarterly, which is the norm today. An Extra Cash Dividend is a payment that is made to shareholders as the result of higher profits; however, the company is under no obligation to continue the extra cash dividend in the future whereas it is expected that if the company raises its regular cash dividend, that increase will be perpetuated in the future.  Nevertheless, extra dividends tended to become regular payments and were usually repeated several years in a row at the same amount. Because these dividends achieved some degree of regularity, they are included in our calculations of the dividend yield of the company.  An optional cash dividend can be paid in either cash or shares at the discretion of the shareholder. A Special Cash Dividend was designed to be a one-time dividend that occurred because of special circumstances and was not going to be repeated.  For example, in 2004, Microsoft had too much cash.  What a problem! Microsoft did not see any good investment opportunities, so Microsoft paid a $3 dividend to its shareholders and let them decide how to invest the money. Similarly, in 1993, General Dynamics sold a division of the company and not seeing any good investment opportunities for the cash, distributed the money to shareholders in three special dividends of $20, $18 and $12.  During World War I, American corporations were encouraged to support the war effort and did so by paying dividends not in cash, but in Liberty Bonds or cash for Liberty Bonds.  These were treated as a special dividend since they were not provided on a regular basis. Of course, payment can be in kind as well. When Prohibition ended, the National Chemical Company distributed the whiskey they had put in storage in 1918 as a special dividend to shareholders. When the Dutch East India Company paid dividends to its shareholders in the 1600s, the company often provided payment in the goods they brought back to the Netherlands from Indonesia and other parts of Asia.  Payment was made in mace, paper, nutmeg, cloves and other goods. During the 1600s, there was a struggle for control of the Dutch East India Company between merchants who owned shares and wanted to be paid in kind so they could sell the spices at a profit, and the passive investors who just wanted cash.  In the long run, the passive investors won the battle of ownership and today dividends in kind are rare. A final type of cash dividend is the liquidating dividend which is paid when the company has decided to shut down its operations.  As the company sells off its assets, it distributes the proceeds to shareholders in the form of a liquidating dividend. The opposite of a cash dividend is an assessment.  Almost no companies assess shareholders anymore because assessments were very unpopular.  The goal of owning stock is to receive money from the company, not to pay it.  Assessments were popular for English railroads in the 1840s and for mining and oil stocks in the United States in the 1800s.  The idea behind the assessment was that shareholders could fund the company on a payment plan.  Building a railroad or mining for gold required a lot of capital, and the company would only ask for money when they were ready to extend invest new capital.  An English Railroad share might have a par value of £100 and the company would ask for £10 when the shares were first issued.  When those funds were used up, the railroad could ask for £10 more until the £100 was completely paid up.  The par value set a limit on how much the company could demand from its shareholders and in most cases, the company never asked for the full par value of £100.  Instead, at some point in time, the company would do a reverse split and 5 shares of £20 became 1 share of £100 and no more calls could be made on shareholders. American mining stocks enticed investors by having a low par value of $1 or $5.  The mining company would ask for ten cents or twenty cents at a time as the company dug the mine deeper and deeper into the ground.  The hope was that eventually, the company would strike gold and the investors would make a large profit, though that was the exception rather than the rule. What could go wrong with payment on the installment plan as assessment funding was known is illustrated by Overend, Gurney and Co. which issued £50 Par shares at £15 in 1865 assuring investors that they had no plans to assess them the remaining £35. However, the company went bankrupt in 1866 and the shares plunged to zero.  The company still had outstanding liabilities and the creditors demanded that the company’s shareholders, who had lost everything in the company, pay an additional £35 to cover the losses of the debtors.  This added insult to injury because not only had investors lost everything they had put in the company, but they had to pay out additional money to the company which they would never get back. Lawsuits followed, but the courts said the shareholders had to pay.  

Stock Splits and Dividends

It is also important to understand how companies differentiated between stock splits and stock dividends before World War II.  Today, companies rarely differentiate between a 5:4 split and a 25% stock dividend, but 100 years ago this was important.  Originally, in the United States, shares were issued at $100.  The company would issue 100,000 shares and the capital of the company would be equal to $10 million.  If the company paid a 100% stock dividend, this not only doubled the number of outstanding shares, but doubled the capital of the company.  In the 1800s, many railroads would pay the capital required to increase the value of the company into the company’s treasury rather than pay the money out to shareholders. On the other hand, when the company split the stock, they would replace one $100 par share with two $50 par shares or 5 $20 par shares.  The number of shares outstanding would double, but the capital in the company stayed the same.  A company could have both a stock split and stock dividend occur simultaneously, for example a 4:1 split and a 50% stock dividend which converted into 6 new shares for investors. By the 1920s, these accounting differences were seen as superfluous and companies began issuing “no par” shares. Companies can also provide stock distributions to shareholders.  A stock dividend gives shareholders additional shares in the company itself while a stock distribution gives investors shares in another company, usually one that is spun off from the parent.  For example, in 2007, Altria spun off its Kraft Foods division, providing each shareholder with 0.692 share Kraft Foods Inc. and in 2008 Philip Morris spun off Philip Morris International, the foreign division of Philip Morris to Altria shareholders. The other way that shares were distributed to investors in the 1800s and early 1900s was through a rights distribution.  If a company wanted to raise additional capital, they can either sell shares to the general public, or they can sell shares to existing shareholders.  Selling shares to the general public enables the company to raise more capital, but it reduces existing shareholders’ share of ownership in the company.  Distributing rights to existing shareholders allows them to maintain their existing share of ownership in the company, and if they don’t want to increase their ownership, they can sell their shares to someone who wants to obtain ownership in the company.  Today, ownership is so diversified that rights distributions are rarely used because few investors are concerned about reductions in their share of ownership in the company, but in the 1800s and early 1900s they were quite popular. The value of the rights depended upon how much shareholders were required to pay for a new share and how many shares they were allowed to buy.  For example, a stock might be trading at $100.  The company could issue the right to buy 1/3 share at $50. In effect, this would be the same as a 33% stock dividend. Using the rights formula, this would give the value of the right at $12.50.  On the other hand, if the price to buy a share was $80, the value of the right would be $5.  The value of the right increased as the number of shares issued increased and the amount shareholders had to pay for new shares decreased.  If a shareholder sold his right, it could be viewed as an effective cash dividend.  

Descriptions of Dividends in the GFDatabase

Although GFD has been able to obtain historical data for prices, shares outstanding and dividends, the data are not always complete.  Price data might be available from one source, dividends from a second and shares outstanding from a third. We might have share prices, but lack complete data on dividends or shares outstanding. We need to know when there are gaps in the data so GFD and subscribers can know when to include or exclude data from individual stocks for their index. GFD has put together a system to aid subscribers in determining the coverage of stocks in the 1800s when data was often unavailable or missing.  With this information, subscribers can accurately choose the stocks that will create indices for their analysis of the stock market. For price data, there can be long stretches when no data are available, even in the 1900s. For a stock traded on the New York Stock Exchange, this is rarely an issue, but GFD covers a dozen regional exchanges and over-the-counter transactions for which coverage can be spotty. There can be gaps of a few years or even a decade for smaller stocks that were listed over the counter.  To help subscribers differentiate between the liquid and illiquid stocks, we have calculated the percentage of months in which each stock has data. The situation with dividends is more complicated. Today, some stocks pay dividends and some don’t, but in the 1800s investors bought stocks to receive dividends, not to receive capital gains. Most companies tried to pay dividends whenever possible.  Bonds and preferred shares were the investments of choice for most people, and common stocks mainly attracted speculators.  But how do you know whether a stock did not pay a dividend, or whether the dividend data is simply unavailable?  We divide stocks into several categories to help subscribers solve this dilemma. Dividend Payers are stocks that paid at least one dividend during its life.  Our research shows that we were able to find all the dividends that were paid and if there are any periods when no dividend was paid, no dividends are included in the stock’s record.  To the best of our knowledge, the dividend record for these stocks is complete, though there may be periods when no dividend was paid by the company. Non-Dividend Payers are stocks that never paid a dividend between the time the stock listed and the time the stock delisted, and we have verified that this is the case.  Many mining companies and railroads in the 1800s fell in this category. Incomplete refers to stocks for which we were able to find some dividend data, but for which we know there are other periods when the company probably paid a dividend, but we have been unable to determine when these dividends occurred, or how much the dividends were for.  In those cases, we have indicated in parentheses the time period where the dividend payments are known so the subscriber can exclude the stock from their analysis during the unknown periods. If a stock traded between 1880 and 1920 and the description says Incomplete (1900-1920) you know that you can rely upon the dividend data from 1900 to 1920, but any dividends prior to 1900 are unknown.  The stock can be used for calculating a price index from 1880 to 1900, but not a return index. Unavailable means that we were unable to find any information on dividends for this stock.  The company probably paid a dividend, but we were unable to find any information on dividends that were paid.  This stock can be used for calculating a price index, but should be excluded from any total return calculations. Fixed Dividend refers to a company that was owned by another company and paid a fixed dividend to shareholders year after year. Railroads and utilities typically fell into this category. In this case, the common stock is similar to preferred shares and consequently, should be excluded from any common stock index calculations because the stock behaved more like a preferred share or a bond than a common stock. Non-Common Stocks are securities that did not allow shareholders to participate in the profits of the company. This included preferred shares, bonds, warrants, units, scrip and rights. These stocks should be excluded from any common stock indices.  

Conclusion

Global Financial Data faces issues that no other data provider must address because of the unique coverage that we provide.  Global stock markets have changed dramatically over the past four centuries, and data issues that might have seemed commonplace 200 years ago are no longer an issue.  For this reason, it is necessary that we educate our subscribers so they understand how corporate actions have changed over time and how they should treat dividends when the record of those dividends has been lost or is unavailable. Should you have any questions, we hope you will feel free to contact us.