Dividends From The Grave

Includes: CHE, CSV, HI, MATW, SCI
by: Divhut

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 (NYSE: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. (NYSE: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. (NYSE: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 (NASDAQ: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. (NYSE: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