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The business model isn't high tech or sexy. In fact, one could find the model downright depressing to contemplate. However, StoneMor Partners L.P (STON), the full-service cemetery and funeral home corporation, is a very unique situation. Since becoming a publicly traded Master Limited Partnership (MLP), STON has acquired cemetery and funeral assets of more than $220 million, making it the second largest owner and operator of cemeteries in the United States.

Among the many factors that make STON interesting are:

√ A Yield of 10.09% Based Upon Its Closing Price of $23.38 on 1/11/13

√ STON'S Successful Mission of Growth Through Acquisitions

√ The Favorable Tax Treatment Resulting From Its MLP Structure

√ Consistent and Recent Insider Buying

√ An Expanding Market for Its Services

√ A Recent Leap Into Profitability

Overview

The Company is headquartered in Levittown, Pennsylvania, and was founded in 1999. STON completed an IPO in September 2004 and is the only publicly traded death care company structured as a master limited partnership.

The Company operates 274 cemeteries in 26 states and Puerto Rico. STON also operates 69 funeral homes, 26 of which are on the grounds of its cemeteries. The cemetery products include burial lots, lawn and mausoleum crypts, burial vaults, caskets, memorials and services to provide for the installation of the cemetery merchandise. This structure allows unit holders to enjoy a high current yield on their units and realize tax-deferred distributions for as long as they hold their investment. (Source: Company 10K)

StoneMor's goal is to generate increasing distributable cash flow for its unit holders through acquisitions, pre-need and at need sales of interment rights, cemetery merchandise and services, and income and gains from managed trusts.

Following is a Financial Overview for STON's most recently reported quarter ending September 30, 2012.

STON - Financial Highlights
Quarter Ending September 30, 2012
% ChangeTotals
PreviousIn
Item & DescriptionQuarterMillions
Revenues (GAAP)3.20%$62.20
Revenues (Non-GAAP)11.40%$75.10
Operating Profits (GAAP)27.50%$5.10
Operating Profits (Non-GAAP)60.00%$14.60
Operating Cash Flow (GAAP)17.00%$16.60
Free Cash Flow (Non-GAAP)17.00%$15.30
NET INCOME (GAAP) WAS $1.1 MILLION VS. A NET LOSS OF $0.2 MILLION

Consistent Dividend History

As an MLP, STON benefits from the favorable tax treatment provided by this structure, which in turn allows unit holders to enjoy a high current yield on their units and realize tax-deferred distributions for as long as they hold their investment.

The annualized dividend paid by StoneMor Partners L.P. is $2.36/share, and dividends are currently paid quarterly. As mentioned above, the current yield is 10.09% based upon its closing price of $23.38 on Friday, 1/11/2013. The next Ex-Dividend date is 1/31/2013.

Recently STON received kudos from the DividendRank (DividendChannel) when it reported that among the coverage universe, STON shares displayed both attractive valuation metrics and strong profitability metrics. The report also cited the strong quarterly dividend history at StoneMor Partners L.P., and favorable long-term multi-year growth rates in key fundamental data points. This kind of positive PR is always helpful and can have a favorable impact.

The report stated, Dividend investors approaching investing from a value standpoint are generally most interested in researching the strongest most profitable companies, that also happen to be trading at an attractive valuation. That's what we aim to find using our proprietary DividendRank formula, which ranks the coverage universe based upon our various criteria for both profitability and valuation, to generate a list of the top most 'interesting' stocks, meant for investors as a source of ideas that merit further research.

Insider Buying

Information about Insider Buying has always been a valuable analytical tool. Logically, if executives, directors or others with intimate and current knowledge of a public company's business activities are buying or selling shares, investors should consider doing the same thing.

Certain insiders of STON have been making consistent "buys" of stock over the past 6 months:

Benefiting from Baby Boomers

As the healthcare industry benefits from caring for the Baby Boomers, STON will benefit from the coming demise of them. The oldest "Boomers" celebrated their 65th birthdays in 2012.

According to government calculations, it's projected that in the year 2030, 26% of the U.S. population will be aged 65 or older, compared to only 17% today.

While this 53% increase in aged 65 or older is attention-getting, so are the absolute numbers, which are enormous: An estimated seventy-eight million American children were born between 1945 and 1964. As STON receives its fair market share because of its leading position in the "Death Care" marketplace, its continued growth over the next several decades should be assured.

My Conclusion

It's my view that STON is a stock that deserves more attention than it currently receives. The Company has all the elements in place for continued growth and profitability. The upside for a capital gain appears compelling, and the 10%+ current dividend yield provides some downside protection.

Although the company has been public for only 8 years, I believe STON's business model has clearly been validated, and management had demonstrated their expertise with a proven track record.

Source: Death, Taxes And Baby Boomers: Ingredients For StoneMor's Success