Death Care Stocks, Do You Own Any?
I do not currently own any death care stocks. Not for any specific reason, I just don’t own any. There are always articles online about SCI and Hillenbrand stocks, but we don’t often hear about any of the other death care stocks. I found the following article this weekend and found it to be interesting to hear a financial insiders
perspective on the Stonemor Partners stock. Read the article and then in the comment share why you own the death care stocks you do.
Stonemor Partners: Acquisition Strategy Is Key To Their Success
Stonemor Partners LP (STON) is an excellent candidate as a dividend stock with a tax-deferred yield. The company, structured as a master limited partnership (MLP), currently offers shareholders an 8.8% dividend yield. There are a few areas of concern which the company needs to address.
Investors need to watch for Stonemor Partners’ acquisition activity. Acquisitions offer the company one of the fastest ways to expand revenues, earnings, and dividends. The funeral service industry is fragmented and growth can be achieved via acquisitions. The only acquisitions in the past few months are 5 cemeteries and 4 funeral homes in Puerto Rico.
Stonemor Partners, as per their May 11th presentation (pg 5), have successfully increased the annual dividend to shareholders.
The company, however, experienced a 1st quarter financial loss. The first quarter, 2011, financial loss was 37 cents per share.
The second quarter did have a net income figure of $815,000. The company’s focus upon increasing the quarterly dividends must be placed in perspective. Stonemor Partners is able to take cash from Merchandise and Perpetual Care trusts in order to satisfy quarterly dividends. This is permitted due to the MLP corporate structure. Non-MLPs are not able to have access to these discretionary funds.
The company has successfully attracted additional funds through secondary unit offerings. The success of future quarters requires Stonemor Partners to pay dividends out of free cash flow and not obtain funds from the Merchandise and Perpetual Care trusts.
Stonemor Partners is based in Levittown, Pennsylvania. The company was founded in 1999 and had its IPO in 2004. The company is the only publicly traded funeral-care business established as an MLP. Stonemor Partners MLPs enjoy favorable tax treatment, providing shareholders the ability to receive a high current dividend yield. The company’s clear vision is to increase cash flow through acquisitions, pre-need and at-need funeral services, and obtain income and capital gains from managed trusts.
Merchandise Trusts and Perpetual Care Trusts
The merchanidse trusts, as per pages 6-15 of the SEC 10Q, are “a portion of the proceeds from pre-need sales of merchandise”. The perpetual care trusts, are “a portion of the proceeds from the sale cemetery property” to accrue interest and dividends. Expenses, per the respective trust, then are recognized as incurred.
Stonemor Partners’ management has clearly stated that acquisitions are the driver for future revenues, earnings, and dividends. If the acquisitions can be accretive, then Stonemor Partners should successfully be able to increase quarterly dividends. The company also has, as needed, access to the secondary markets to fund acquisitions.
A core issue to watch is the Merchandise Trusts and Perpetual Care Trusts’ dividends, earnings, and capital gains. These trusts are designed to take present day dollars, invest the money, and incur the funeral-related expenses as they are incurred. Due to fixed income rates remaining on the low-side, the funds are a central focus to ensure the MLP has funds to pay for future expenses.
I remain long Stonemor Partners (STON) and have confidence in management acting in the best interest of shareholders. I also am aware of the limited yields available to the Merchandise Trusts and Perpetual Care Trusts. Page 43 of Stonemor Partner’s SEC 10Q, documents how the trusts are currently invested and earning interest, capital gains, and dividends.
Service Corp. International (SCI)
Service Corp. International is the largest funeral services and cemetery operator in N. America. As of December 31st, 2010 The company operates over 1,400 funeral service locations and 381 cemeteries. Service Corp. International owns 12-funeral homes in Germany. Service Corp. International owns and operates flower retailers, limousine services, and burial vaults.
Stewart Enterprises Inc. (STEI)
Stewart Enterprises is the second largest provider of funerary services and products in the U.S. The company owns and operates over 200 funeral homes and 140-cemeteries. These facilities are in the U.S. and Puerto Rico.
The company purchased over 600-funeral homes in the 1990s. This caused a financial burden which the company is dealing with in a prudent and successful strategy. Most of the facilities have been sold and the company is focused upon the most profitable and successful operations. The company is currently profitable and paying a 3.5 cents per quarter, per share, dividend.
Hillenbrand, Inc. (HI)
Hillenbrand is the holding company for Batesville Casket Company. Batesville Casket Company is a leader in the North American funeral services business. Batesville Casket Company sells funeral service products, including: burial caskets, cremation caskets, containers and urns, selection room display fixturing, and other personalization and memorialization products.
The company, through its other subsidiaries, 1) K-Tron International, Inc. and 2) ROTEX, designs, produces, markets, and services bulk solids material handling equipment and systems for various industrial markets, particularly in the plastics, food, chemical, pharmaceutical, and power generation sectors. The Process Equipment Group is aggressively moving overseas for additional growth in revenues and earnings.
The move to China is focused upon coal-fired electricity generation and providing plastics and food processing. The move to Russia is focused upon fertilizer potash and coal mining services.
The company pays a 19 cent quarterly dividend and currently yields an annual 4% dividend yield.
Matthews International Corporation (MATW)
Matthews International is a manufacturer and marketer of principally custom made products that are used to identify people, places, products, and events. It has six business segments: Bronze, York Casket (26% of 2010’s revenues), Graphics Imaging, Merchandise Solutions, Marking Products, and Cremation Equipment and Cremation Related Products (5% of 2010 revenues).