Out with the Aughts: ‘D’ is For Death = Investment Opportunity?
The following article is by: Ian McGugan. Ian is a freelance business journalist who writes for the Financial Post. In this article Ian talks about the funeral industry as an investment opportunity mainly due to baby boomers and the increased death rate over the next few decadess. Do you look at the industry as an investment opportunity?
Out with the Aughts: ‘D’ is for death
One day you will die. This is sad. It is also an investment opportunity.
Funeral homes are one of the few businesses that are guaranteed a growing audience for their services, not only over the next decade, but over the next several decades.
As Boomers age, the industry made famous in the television series Six Feet Under is emerging from the low-mortality period that a funeral home expert calls “death valley” and entering a period in which customers will become more and more common.
Investors who want a way to profit from the aging of North America should take a look at funeral home companies. These firms have surged since their lows of the spring, but are trading well below their levels of a couple of years ago.
The giant in the field is Service Corp. International of Houston. Smaller players include Stewart Enterprises Inc. of Jefferson, La., Carriage Services Inc. of Houston and Canada’s own Arbor Memorial Services Inc. of Toronto.
Death stocks have been largely ignored since the 1990s, when consolidators swept through the industry, buying up funeral homes and cemeteries, and turning funeral chains into unlikely glamour investments.
Back then, eager investors expected death rates to start rising shortly after Y2K as the earliest Boomers entered their mid-50s. Unfortunately for the industry, people stubbornly kept on living. Thanks to improved nutrition, medicine and safety, the expected lifespan of Canadians and Americans has steadily increased from 68 in 1958 to close to 80 today.
Many of the funeral home companies that had borrowed heavily to acquire competitors in the 1990s wound up being acquired themselves. The companies that survived faced an increasingly tough market, as more and more customers began to turn down traditional funerals in favour of much cheaper cremations.
The cremation trend is still firmly in place. While only 3.5% of families chose cremation for their departed in 1960, about 41% are doing so now. The proportion is climbing by about a percentage point every year.
Cremation doesn’t have to burn up profits, though. The funeral industry is finding ways to tap into new revenues.
For instance, Keystone North America Inc., a funeral home chain that is in the process of being acquired by Service Corp. International, is expanding into the flower business and offering special services for veterans. It is also selling packages that help grieving families deal with financial and estate-management issues.
The biggest trend of all is a move to rework the traditional funeral as a memory of the departed’s life. Many funeral homes are working with professional “celebrants” to deliver memorial ceremonies — and even cater the events with beer and wine.
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