StoneMor (STON), the biggest funeral service company in the U.S., operates in a rather unusual sector and judging from the business description, its stocks can easily be ignored on the first glance.
The seemingly morbid company, dealing with after-death services, has a completely different picture to present to its investors. Its striking 8% dividend (and growing) is ample proof that this age-old profession can actually be a very profitable (and very stable) business ... which is perfect for investing for dividends.
StoneMor covers more than 26 states in the U.S., mostly on the East Coast, and Puerto Rico. It boasts of operating 260 cemeteries and 58 funeral homes. It primarily deals in interment rights, caskets, burial vaults, cremation niches, markers, and other cemetery related merchandise. It also offers digging and refilling of burial spaces to install the vault and place the casket into the vault.
Under the company’s Funeral Homes segment services such as family consultation, the removal of and preparation of remains and the use of funeral home facilities for visitation are provided.
The company motto is to "to memorialize each life with dignity". The issue of death is a tricky one and requires a very careful approach, where you certainly do not wish to offend your prospective customer, yet you need to talk to him or her about the ‘end’.
StoneMor, as it appears, has perfected the technique. By staying close to the local traditions in each society it operates in, it has undoubtedly earned the respect of its customers and created a ‘moat’ around their business model.
As death is one of the only certain things in this world other than taxes, it puts StoneMor in a unique position to benefit from an aging baby-boomer population.
Since its inception in 2004, the company exhibited a steady trend in yield from 2006 to 2008 where yields remained between 7-9 %. The year 2008 brought the brightest times for the company as the yields showed a rapid growth, touching a staggering 20% by the first quarter of 2009.
The company revenue growth has slightly slowed in the last three years; however it is far from stagnant, 23.30% quarterly growth as compared to last year. Operating profits fall marginally last year but that can be explained through higher acquisition related costs as a result of expansions of the company. The current gross margin stands at 55.75% while the operating margin is 4.57%.
StoneMar has been focusing on purchasing more cemeteries and funeral homes. The latest purchase was made in June 2010 when eight cemeteries and five funeral homes were purchased in Indiana, Ohio and Michigan. Purchase of another nine cemeteries and ten funeral homes is in the pipeline.
According to an estimate, it will take at least 250 years before space runs short in the currently held cemeteries of the company.
It is important to note that the company is operated as a master limited partnership. Hence, the shareholders end up with paying less taxes and stuffing more dividends in their pockets.
StoneMor might indeed not be the most interesting stock to trade in the market. The relative stable prices do not appeal to some; however, no one can deny the safety and future assurance that this stock can provide to you.
The company is clearly a buy-it-forget-it type of stock. This dividend payer will continue to grow its distributions for decades to come and is a great buy at this price.
Disclosure: I am long STON.