Dividends From The Grave

Death Care Industry Dividend Stocks

 

We all know the saying, “the only two things certain in life are death and taxes,” and while I don’t want to be too macabre with this blog post it is a fact of life that we all will die one day and that a whole industry around death, from funeral products and services as well as hospice care exists. The death care industry is unique in the fact that it is not cyclical nor seasonal. The services required when a person dies is needed year round in good economies and bad. That being said, there are several relatively unknown dividend payers in this sector that may have a place in your dividend portfolio.

 

 

First up, is Service Corporation International (SCI). SCI operates through two segments, funeral and cemetery. The funeral segment of the business provides various professional services relating to funerals and cremations as well as preparation and embalming services while the cemetery segment of SCI develops lots, crypts, and mausoleum spaces as well as sell cemetery related merchandise such as stone and bronze memorials and markers to name a few. SCI currently yields a low 1.60% with a payout ratio of 29.9% which ensures that the current dividend is very safe. SCI has been paying a dividend for about 30 years and recently started paying a growing annual dividend. The current PE for SCI is 34.06 which is well above the S&P but below its peers. SCI might still be considered a little pricey at current price levels.

 

Next up is Hillenbrand, Inc. (HI). HI is a diversified industrial machinery company that operates several companies under the Hillenbrand name. One of these companies is Batesville which designs, manufactures, distributes, and sells burial caskets, cremation caskets, urns, and memorial products. HI currently yields a respectable 2.50% with a low payout ratio of 37.6% which, like SCI, ensures a safe dividend. HI recently started paying a dividend back in 2008 but has raised it every year since and with the low payout ratio and current cash flow I would expect HI to continue raising its dividend for years to come. On a valuation basis HI seems to be fully priced in with a PE of 22.4 which is in line with its peers but a little high relative to the market as a whole. This might be a good potential long term dividend grower.

 

Another stock to consider in the death care space is small cap Carriage Services Inc. (CSV). With a market cap of only $318M, CSV is the smallest of all the companies mentioned here. CSV operates 161 funeral homes in 26 states and 31 cemeteries in 10 states. It provides many of the same funeral services SCI and HI provide including the sale of caskets and funeral merchandise. It seems everything financial is small about CSV from its yield of only 0.60% to a ridiculously low payout ratio of 8.3%. CSV definitely has lots of room to maintain and grow its dividend. The only thing high about CSV is its PE which stands at 32.2 making is expensive relative to the S&P but cheaper than many of its peers as the industry average is at 38.9. Is CSV a relative bargain even at current prices? Perhaps.

 

Next up is Matthews International Corporation (MATW). MATW designs, manufacturers and markets memorial products for cemeteries including bronze, granite and aluminum architectural products, as well as build mausoleums. MATW manufactures wood and metal caskets, cremation caskets and urns as well as build cremation and incineration systems. MATW currently yields 1.10% with a very low payout ratio of just 16.4%. Another safe dividend. MATW recently increased its quarterly dividend 10.0% in November 2013 and has been paying a dividend since 1994. On a valuation basis MATW might be considered “cheap” with a PE of 21.2 putting it well below industry peers.

 

Finally, we have hospice and palliative care provider Chemed Corp. (CHE). CHE provides care through a network of physicians, registered nurses, home health aides, social workers, clergy, and volunteers at its VITAS hospices. It also operates a totally unrelated company that everyone has heard of, Roto-Rooter. Yes, that Roto-Rooter. This has to be one of the oddest corporations operating in two very different segments. This is one of the joys I get when I write about dividend stocks. It is the knowledge I gain by featuring companies I normally wouldn’t even look at. Who knew that hospice care and Roto-Rooter was all one company? Getting to the numbers CHE currently is yielding a low 0.90% with an equally low payout ratio of 15.6%. Notice how every company featured has a very low payout ratio. I find it interesting that these similar companies share that trait of having very safe dividends based on current cash flow. From a PE standpoint CHE is at 22.2 which is below its peers but slightly higher than the S&P as the other companies featured are as well.

 

Though often a topic we rarely want to discuss, sickness and death is a fact of life. The death care industry has a resilience that very few sectors possess as it provides a service that everyone will require at some point in time. Do dividends in death have a place in your portfolio? Let me know if any of the companies mentioned interest you.

 

Disclosure: Long NONE

Image courtesy of: Sira Anamwong at FreeDigitalPhotos.net

31 thoughts on “Dividends From The Grave

  1. Hey DH,
    Hillenbrand (HI) looks very interesting here. I have never thought about this industry before but you have made some very solid points. This is an industry that will continue on for decades to come, unless we figure out the path to immortality in the future. Thanks for posting this and I will take a further look into (HI).
    DividendMongrel recently posted…Loyal3 Recent Stock Purchases DPS, WMT, DNKNMy Profile

    • Hi DM,

      I have to agree with you that HI seems the most interesting as it is the most diversified company mentioned. It has many other industrial applications and not just focused on the death care industry. Thank you for commenting.

    • Hi LAH,

      The death care business is definitely one that is here to stay. We will always need the services of this sector. While the obvious answer to your question is that “everyone dies” this doesn’t necessarily mean the companies in this industry can relax and enjoy a competitive advantage. It’s the same as saying, everyone must eat so let’s start a food/restaurant business. As you know many food businesses and restaurants have gone bankrupt too over the years. In short, from the companies I mention your best bet is to go with one that is diversified in its activities such as HI. Besides for being in the death care business it also manufactures a lot of industrial items not related to the death care sector at all. This might help insulate the overall business during market gyrations.

  2. CSV looks interesting. If they had a higher dividend yield it would be a perfect stock for me 🙂 I will add it to my watch list for now. Thanks for the info on the other companies too. They say about 1 in 8 Americans is over the age of 65 today, but by the year 2030 it will be 1 in 5. In a world of aging population, investing in funeral homes and hospice care could make for a nice hedge against one’s own retirement. My friend bought a REIT that specializes in retirement homes. That’s not a bad idea I think, but have to watch out for interest rate risk 😕
    Liquid recently posted…Strong Canadian Housing Market 2014My Profile

    • Hi Liquid,

      CSV does look interesting if you don’t mind investing in small cap stocks. Personally, for my money, I don’t invest in such small companies. It does have a very low payout ratio which means there is plenty of room for the dividend to grow as well. From the bunch, HI seems to be a more solid pick since it offers diversified products related to the death care industry and other sectors as well. It is also true that the future of America looks increasingly gray and investing in death care or health care REITs might be a good long term play. Thanks for stopping by.

    • Hi ES,

      I hear you about preferring to deal with “live” companies rather than the business of death. Not to be too macabre with the post I did want to highlight some interesting dividend plays in a sector that really has no cycles. Thanks for stopping by!

  3. DivHut,

    Interesting topic, and certainly a business model that isn’t going anywhere. Where death is concerned, business is unfortunately good.

    However, taking a quick look at some of these stocks I don’t see much to like. High valuations, low yield, and a lack of much dividend growth leaves me on the sidelines for now. But that could change in the future!

    Thanks for giving us the rundown here.

    Best wishes!
    Dividend Mantra recently posted…A Multistage Rocket Model For A Dividend Growth Stock PortfolioMy Profile

    • Hi DM,

      Interesting topic indeed. By now you can tell I like to focus on investment themes for potential dividend payers. While I do not currently own any of the stocks mentioned because of the points you make, there is no denying the longevity of this industry and its ability to flourish during good economic times and bad. Some of the companies mentioned have been paying dividends for decades uninterrupted. I will say that valuations have to come down a bit before I would consider jumping in. Thanks for commenting.

  4. I like HI. Yet another company I used to own. They have a steady streak of raising the dividend, my only issue was that they raise it very slowly which was below my desired raise at the time. I think it is something like .5 cents per year.

    Otherwise, they are an oddball with all of the various pieces they contain. A mixture of coffins and industrial tools =)

    Take care!
    ILG recently posted…Loyal3 Purchase: TargetMy Profile

    • Hi ILG,

      HI definitely represents the most diversified company from the ones that I mention not solely being in the death care space. True it’s not a high dividend grower but it does pay a pretty decent current yield that is very safe. Thanks for stopping by.

    • Hi FJ,

      Just trying to keep things interesting and talk about some of the lesser known dividend stocks out there once in a while. No question as America grays the need for health care facilities and death care services will increase. Thanks for the comment.

  5. Divhut,

    Great minds think alike! Yesterday I was discussing with my brother about such investments. After all, the human population is growing, baby boomers are getting older… I know it sounds a little creepy to say it but like you said, it’s a fact of life and it seems that dying is as expensive as living nowadays…

    I made some fast researches yesterday and I was surprised that many well-known companies here in Canada were not trading on the stock market. I guess that making money with death is not something people see with a good eye…

    I’ll keep SCI on my watchlist. But, even though I am not superstitious, I wonder if buying such a stock to include in my portfolio is something that I really want… It could remind me every time I check my stocks that I’m getting closer to my death date… 🙁

    Anyway, with such a high P/E I guess I’ll pass for now. Maybe there will be an after Halloween sale on this one! Who knows?!

    You could also have included life insurance companies here. It’s kind of related… But maybe the subject of another post! 😉

    Take care
    Allan recently posted…1979 – Warren Buffett’s letter to shareholders – All the best quotes to become a better investor!My Profile

    • Hi Allan,

      As I wrote to DGJ, “…the population gets older a general theme for investing would be to get into medical/health supply companies, hospitals/rehab facilities and ultimately death care services.” This is just the trend we’re headed in. I think looking at Japanese demographics can foreshadow a lot of how the USA will look in the coming decades as Japan has a current high elder population. I thought it would be interesting to highlight some dividend stocks that get little attention. Personally, I think HI might be a decent pick because of its yield and diversification as the death care business is just a part of the company’s total offering. Thanks for the comment.

    • Hi Dave,

      I have looked at STON before and was considering adding them to my rundown but opted against it because of their ridiculously high yield that is not covered by their current cash flow. Though tempting to invest in them for the short term to collect some of that yield I am not sure how long they can keep paying out such a high dividend. At least the other companies mentioned have safe dividends that won’t be cut or eliminated any time soon. Thanks for the suggestion.

      • STON is a master limited partnership. MLP’s have to distribute most of their income to their investors, thus the high yield.

        • Hi Kyle,

          Thanks for the info about STON. I realize that like all MLP’s and REITs in order to maintain their favorable corporate tax status they must distribute 90% of their earnings as distributions to shareholders. I still don’t like the fact that STON has been losing money over the past 5 years with an EPS of -$0.75. Still, I realize that yield is hard to ignore. Thank you for commenting.

    • Hi DGJ,

      That’s exactly right. As the population gets older a general theme for investing would be to get into medical/health supply companies, hospitals/rehab facilities and ultimately death care services. Thanks for stopping by.

  6. I like the concept and yes many bloggers never focus on industries that are different than the norm. I would really consider one of these as the biggest segment of the population is getting closer to the end. If prices come down a little these can be a great buy.

    • Hi 101,

      Something to consider that’s all. I know these aren’t names or an industry that gets a lot of attention but there are a couple names that can be part of a dividend portfolio. Thanks for the comment!

    • Hi HHWG,

      I think finding stocks to invest in should be grouped into themes. It makes investing for newbies a lot easier to understand and digest. The death care space does have a few interesting picks. One of my favorites from this sector would be HI because it is a diversified company not dependent on just the death care space. Thanks for stopping by.

  7. I’ve recently moved in to this sector myself, care homes is a fairly new branch of the REIT industry in the UK, but the very long leases, highish yields and huge growth potential made it hard to resist, government used to take care of the elderly but now they are increasingly farming this out to the private sector.

    Cheers,

    Dave….

    • Hi Dave,

      Well the death/health care space is definitely an industry that will be growing in the USA as our population becomes increasingly gray. Of all the REITs I am partial to health care REITs and foresee a long term trend of the industry expanding. Granted there will be near term interest rate issues to deal with as rates rise and health care REITs use debt to expand but I think the longer term play is a safer bet for the space. Thanks for your comment.

  8. Both of my in-laws are in the Death Care business, and the joke is “how are the bodies treatin’ ya?” Well, they are always coming in and there will be no shortage of business with the Baby Boomers parents dying off and the Boomers following them right behind.

    I very overlooked industry in my viewpoint, there has also been a lot of consolidation and buying, esp from Dignity (SCI), who has also been expanding from cemeteries and funeral homes into elder care facilities; personally I think it’s a bid morbid (pun intended there) that the same company that is supposed to care for the elderly also profits when they die…

    • Hi Brian,

      The death care industry is definitely unique in the sense that, as you say, “There will be no shortage of business” and the bodies “are always coming in.” It’s a sector that is not seasonal either. I tried to take a look at this space from a dividend perspective and found that there are at least a couple decent dividend payers in the space worth considering. Yes, it’s a bit morbid and odd to profit off of death but it is a service that will be in demand for decades to come. Thanks for commenting.

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