The World’s Hottest “Commodity”

March 23rd, 2013
in contributors

by Matthew Carr,

This “commodity” has blown away almost any other you could stack up next to it…

A gain of over 360% during the last five years.

But it’s controversial… Mainly, because it hits so close to home.

I’m talking about Death. It’s an industry eventually every person on this planet will need.

Follow up:

We can either deny that it’s going to happen, or we can accept it. And profit from it.

On average, 2.5 million people die each year in the United States. But this is about to pick up as the Baby Boomers hit the final stretch. By 2040, the number of people dying each year in the United States will practically double from current levels.

Death is a commodity. It even has its own seasonal uptick as the storm and flu seasons run amok across the United States.

Death is also a business – one that has a constant market.

Despite appearances, the vast majority of funerals – or “celebrations of life,” as they’re now called – in this country aren’t handled by small, family-owned businesses. Instead, they’re handled by large, publicly traded companies.

And shareholders are reaping exceptional rewards.

Cremate the Market

My Funeral Services Index, made up of the four largest funeral services and cemetery operators in the country, has obliterated the performance of almost any other industry.

During the last 13 months – since January 2012 – this index is up 86.10%, including dividends.

Over the last five years, the return is an astronomical 365.31%.

The only thing that can come close is the performance of silver. The iShares Silver Trust (NYSE: SLV) is up 149.59% since 2009.

In other words, if you want to cremate the S&P 500, this is how you do it…

A $20,000 investment evenly split among this index in 2009 – with dividends reinvested – would be worth $94,754 today.

But the big gains aren’t behind us. They’re still ahead.

So, let’s meet the companies in my Funeral Services Index

#1. Carriage Services (NYSE: CSV)

Over the last 13 months, the return on Carriage Services is 225.40%, including dividends. Since January 2009, the 821.64% gain is the best in the funeral services industry.

So far this year, shares are up over 54%! And just since February 15 – when I last wrote about this index – Carriage Services is up 23.15%.

Since 2009, shares of Carriage Services have returned at least double-digit gains every single year.

The company’s sales have steadily ticked higher. Since 2009, annual sales have increased from $177.6 million to $204.3 million in 2012. During that span, earnings per share increased from $0.40 in 2009 to $0.84 in 2012.

#2. Stewart Enterprises Inc. (Nasdaq: STEI)

Stewart Enterprises is a little larger than Carriage Services, with a market cap of $662.5 million. Over the last year, the return on shares of the company is a respectable 50.34%, including dividends.

Since January 2009, the gain is 206.95%.

The company owns 217 funeral homes and 140 cemeteries in the United States and Puerto Rico.

Revenue has steadily ticked higher over the last several years, rising from $499 million in 2009 to $527.9 million in 2012. The company also increased its dividend by 50% in 2012.

#3. Stonemor Partners LP (NYSE: STON)

Stonemor and its $1 billion market cap hasn’t had as great of a run as Carriage Services during the last year. But because of its hefty dividend – a yield of 9.20% – the return is 23.58%. And over the last five years, that dividend has helped bolster the return to 205.09%.

For many income investors, that hefty 9% dividend yield from this MLP is hard to ignore.

Since 2009, the company’s revenue saw one of the sector’s higher growth rates – increasing from $181.2 million to $245.6 million in 2012, with its dividend rising from $2.22 per share in 2009 to $2.36 per share in 2012.

In the first nine months of 2012, funeral home revenue increased 24.6%, while pre-need cemetery contracts increased 10.7%.

#4. Service Corporation International (NYSE: SCI)

This is the largest of the funeral service operators, with a market cap of $3.2 billion.

Over the last year, the return on the stock is a decent 45.08%, including dividends. And shares are just off their 52-week high.

Since January 2009, the return on Service Corporation is – like the rest of the Funeral Services Index members – an eye-popping 227.57%.

Being considerably larger than its competitors, the company’s revenue isn’t increasing as rapidly. But as is seen with the rest of the industry, Service Corp. has seen steady growth. In 2009, sales were $2.1 billion, and rose in 2012 to $2.4 billion.

The company has also increased its dividend 50%, from $0.16 per share annually in 2010, to $0.24 per share in 2012.

Death is a difficult subject to broach. But it’s ultimately no different than any other healthcare provider or service sector.

And just like those sectors, the number of customers in the funeral services industry is projected to rise higher and higher.

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