Despite continued losses of the Washington Star, Time Inc. today reported record first quarter net earnings of $26.6 million, and for the fourth consecutive year increased its quarterly dividend.

Citing gains in nearly all of the company's principal operations, Time President James R. Shepley told the company's annual stockholder's meeting that despite a possible recession in the coming year and an anticipated reduction in the sharply increased number of outstanding shares of stock, the company should have record income and earnings in 1979.

Concerning the Star, which Shepley said "We were able to buy very cheaply (a reported $20.8 million) in 1978 because it was losing money," advertising linage and circulation were said to be improving.

"Circulation has increased by about 9 percent according to the latest ABC (Audit Bureau of Circulation) figures," Shepley said of the Star, adding that he felt advertising gains would follow circulation increase. He cited the introduction of local community editions, new five-year contracts with labor unions "giving us improved work rules and some immediate economies," and a stronger editorial staff as "steps to remedy" the Star's losing situation.

After the meeting, corporate spokesman Louis Slovinsky said "Mr. Shepley misspoke" about the Star's circulation gains. "Those were not ABC figures," Slovinsky said. "They are our figures and they show we had 328,000 circulation last year and we have slightly over 356,000 now."

In Washington, a circulation official at the Star said Shepley had taken the ABC figures for the quarter ending Sept. 30 and compared them with the paper's own circulation figures for the first week in April.

We were under no illusions when we bought the Star," Shepley said. "But we believe that in the fast growing and richest metropolitan market in the nation, where newspaper readership is the highest in the land, the Star gives Time Inc. a highly attractive publishing opportunity."

The company flew 300 copies of the first edition of today's Washington Star to New York in time to be displayed by 11 a.m. on a reception table outside the shareholders meeting at the Time-Life headquarters here.

During the question and answer session, professional corporate gadfly Evelyn Y. Davis congratulated the board of directors for the purchase of the Star, "and the selection of Murray Gart as the editor."

The only other questioner was Murray Barton, president of Washington-based Accuracy. In Media, who complained of a recent published report quoting a Time editor as taking credit for suppressing a review of a book named The Big Story."

Baron called the book "an exhaustive study" which questioned the media's coverage of the war in Vietnam, and particularly criticized Time magazine's role in that coverage.

In a press release given out during the meeting, Shepley and Chairman Andrew Heiskall summarized the company's performance and outlines future plans.

Net income for the first three months of the year was up 24 percent over last year's $21.4 million. However, they pointed out, because of an increase of about 30 percent in the number of outstanding common shares-due largely to the purchase of the Star, Inland Container Corp. and American Television and Communications Corp. (ACT)-eranings per share were down to 95 cents from $1 during the same quarter of 1978.

Total company revenues for the first quarter were $536 million, up 56 percent from the $343 million a year ago, with 80 percent of that increase coming from the acquisitions. About 45 percent of the increased net income came from the new companies.

Time magazine had a record first quarter, with a 35 percent increase in advertising while People magazine's ad revenues jumped 40 percent, the company reported. The reborn Life magazine has already jumped from a monthly circulation to 700,000 at last October's debut to 1 million by year's end.

Video operations, including the company's cable and pay TV interests, were also big gainers. Forest products were also on the move, particularly with the addition of Inland. That acquisition increased Time Inc.'s timberland holdings by 50 percent.

The company elected three directors, Joe C. Denman, Jr., a Time Inc. group vice president and chief executive officer of its subsidiary Temple-Eastex, Inc. Henry Grunwald, Time's corporate editor and former managing editor of Time magazine, and Ralph Graves, also a corporate editor, and former managing editor of Life. CAPTION: Picture, Stockholders crowd the annual meeting of Time Inc. in New York to hear a report of record earnings. AP