On this date in 1888, the Chicago, Milwaukee and St. Paul Railroad skipped their dividend payment. This led to the stock price “crashing” –7.87%. It was indicated that net earnings declined from $3,662,930 in 1887 to $1,875,925 in 1888, approximately -48% year-over-year. According to the New York Times:
“Officers of the St. Paul Company, the same who have been dealing out rose-colored fictions for months past, were kept busy throughout the whole of the day endeavoring to explain why they had been pursuing such a deceptive course. (New York Times. “Wall-Street Stirred Up: Bulls, Bears, And Every Body Feared A Panic. The Startling St. Paul Railroad Discoveries Proved a Sensation Indeed--The Stock's Big Drop.” September 14, 1888. page 2.).”
Apparently, St. Paul had a history of accounting that suggested the dividend cut was not, or should not have been, a shock. According to the New York Times:
“The overwhelming losses in net earnings (at the rate of $3,500,000 a year) were not to be disguised by even the phenomenally remarkable bookkeeping methods that have made St. Paul statements the target for derision and denunciation for years past (New York Times. “The First to Confess: Wall-Street Is Treated To a Big Sensation. The St. Paul Railroad Forced By Bad Earnings To Abolish Dividends-Tremendous Losses”. September 13, 1888. page 1.).”
At the time, the cut in the dividend sent shockwaves through the market. However, St. Paul happened to be the average underperforming railroad at the time, as indicated below:
