Families with tight budgets are cutting back on everything, including funeral arrangements for loved ones. Still, there's a guaranteed market for death care companies. Even though it might seem heartless to profit from death, there are some interesting opportunities calling out from beyond the grave. (To help you plan your future and the future of your family, read Getting Started On Your Estate Plan.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Nothing Is Certain Except Death and Taxes and Competition
Analysts that doubt this industry because of statistics showing longer life expectancy thanks to preventative health care and medical innovation are missing the point. The fact is that total death volumes must inexorably increase. Over the next 50 years in the U.S., the number of deaths annually is expected to climb 50%. People are rarely happy to employ funeral service firms, but this is one industry where market sentiment has no influence. Inevitably, the industry will soon enjoy substantial and stable revenues from an aging and unhealthy U.S. population.

In reality, the true threat to pure play funeral stocks is burial trends and competition. Cremation, in particular, is pressuring both sales and margins. Families and government bodies are increasingly opting for lower cost cremation services rather than burials. Cremations are not only cheaper, they squeeze margins by eliminating potential upsale of caskets and other funeral products. The Cremation Association of North America reports 34% of all deaths resulted in cremation in 2007, and by 2015 that number is expected to jump to 44%.

Additionally, big box retailers like Wal-Mart Stores, Inc. (NYSE:WMT) and Costco Wholesale Corporation (Nasdaq:COST) are waging a price war against funeral service companies. Traditionally, caskets are not inexpensive. Now, you can get a casket at one of these retailers at a competitive price. (For more on Wal-Mart and Costco, check out Analyzing Retail Stocks.)

Don't Bury Funeral Stocks
Despite these competitive threats, there are some interesting stocks in the funeral segment. StoneMor Partners L.P. (Nasdaq:STON) jumps out because of a phenomenal 8.69% annual dividend yield. StoneMor's yield and steady cash flow are attractive, but earnings have been unreliable.

Service Corporation International (NYSE:SCI) is North America's largest funeral home and cemetery operator. Services pays a healthy 2.01% annual dividend yield, and is also the best performing stock in the space year to date, up 21%. This outperformance has pushed Service's price-to-earnings multiple past 20, the most expensive in the group.

Over the past month, Stewart Enterprises, Inc. (Nasdaq:STEI) is the top performer, having risen 14.6% from a year ago despite a disappointing third quarter earnings report. Stewart Enterprises pays a solid 2.25% yield.

Then there is Batesville, Indiana-based Hillenbrand, Inc. (NYSE:HI) which is really worth taking a close look at. Hillenbrand trades at a very cheap multiple of 12.1 times earnings, and pays an excellent 3.77% yield. On the downside, Hillenbrand's casket business and margins are vulnerable to a price war with Wal-Mart and Costco.

The Bottom Line
There will always be a market for these companies' services, and the market is only going to get bigger. If StoneMor can demonstrate more stable earnings power, that yield will become even more attractive, resulting in very tangible price support. While some of these names are interesting and valuations are good across the board, significant risks to the funeral business remain. In addition to changing dynamics in consumer burial behavior and competitive pressures from mega-retailers, investors must worry about a downdraft in preneed sales if the economy deteriorates further. End-of-life services companies highly leveraged to preneed sales may expose investors to volatility risk. It might be better to wait for this group to stabilize before resting comfortably with some of the big dividends. (For more on dividends, check out Why Dividends Matter.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matt Cavallaro did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!