Death Care in the United States is a huge, profitable business, and investors on the public stock exchanges have known that for a long time. There are only a handful of public companies involved in the funeral home and cemetery industries in the country, but those corporations are, from a business perspective, generally a very powerful choice for any investor’s stock portfolio.
“People who don’t buy our stock just don’t like money,” is the somewhat famous quotation from Robert Waltrip, founder of Service Corp International, widely considered the leading funeral home and cemetery country in the world with more than 2,000 highly profitable properties across the globe.
So, it is probably obvious that our answer to the question posed in the title, “Are death care companies good in your stock portfolio” is going to be, “yes.” With that out of the way, it’s good to take a look at some other important aspects to this question.
Why Public Death Care Companies are so Profitable
Death care companies that are listed on the New York Stock Exchange have a long history of being “consolidators” more than anything. Following the model of many other companies in industries ranging from publishing to broadcasting to health care, large corporations in the death care industry have spent much of the last 30 years or so buying smaller companies and incorporating them into their stable of properties, thereby benefiting from shared resources and economies of scale. (Embalming fluid, for example is much less expensive when purchased in large quantities than in small supplies. This is largely due to complications that arise during the delivery process. If companies can deliver a large amount of the fluid to one central location where all embalming for an entire region’s worth of funeral homes are done, that can help a company save thousands in any given year.) While this strategic business tactic can have a dramatic effect on a company’s expenses, it can also have a great deal of good (from an investor’s perspective anyway) effect on prices the companies can charge for their services. The trend toward consolidation, of course, means that there are increasingly fewer competitors in most markets in which the large companies operate. And less competition means that companies are able to increase their prices by natural economic laws.
So, this means soaring profitability for companies with the funds to expand through purchasing their competition (or potential competition). About the only risk to this arrangement comes in the form of debt. Occasionally a death care company that is traded publicly will bite off more than it can chew when it comes to gobbling up smaller funeral home and cemetery companies. And this can lead to too much leveraged debt that will lead to cash flow problems.
In other industries, particularly media and publishing, where profit margins are not as large, too much debt has been a significant problem, forcing public companies to sell off, or even close, assets that were too costly to maintain. But, in the death care industry, managers have, for the most part, been able to simply run their operations more frugally for a few months until healthy cash flow levels returned. Bankruptcy, therefore, is an almost unheard of phenomena in the death care industry. So long as investors can endure (usually brief) periods of profit margins low enough to be in comparison of other large industries (namely retail and restaurants, each with typical margins in the 10-15 percent range), they will almost always find great satisfaction in having at least one death care company in their investment portfolio.
Ethics of Investing in Death
But that leads to an important question that everyone who has a death care company in his or her portfolio should ask of himself or herself. Is it right to rely upon death for great profits from an investment? A case in point occurred in about 2011 when the CEO of a large death care company that had just expanded into Florida in a big way was quoted as being “ecstatic” about data showing that Florida’s larger-than-average senior citizen population would be more prone to flu and pneumonia than it had been in years. For families navigating legal and financial matters after a loss, understanding the Probate Process is also an important part of planning.
“Everyone else wants vaccines to work. We, meanwhile, will be just fine if more people die of the flu or pneumonia this year,” the CEO said.
Such a crass statement may not have been intended for public consumption – though it was uttered in ear shot of a reporter, of course – yet it points to a problem that may keep many people from supporting death care with their investment dollars. Many investors are simply uncomfortable with basing their retirement investments on the big players in death care – though, statistically speaking, that’s exactly what they should do.
Prospects for Death Care’s Future
Another important consideration for anyone struggling with the question of whether death care is a good stock investment is this: the consolidation strategies that companies have relied upon to emass their empires so far are all subject to the whim of two groups of people who very well may not cooperate for much longer. Those are the smaller competitors and the industries customers. As soon as customers, for example, begin to resist the higher prices charged by the bigger, corporate owned, funeral homes and cemeteries, the larger companies will begin having less money to put into purchases of the smaller companies, and the consolidating trend will gradually dry up. Likewise, with more potential for economic growth themselves as more customers come their way, the smaller death care companies will be less likely to sell out to the big conglomerates.
So, while having a death care company or two in an investment portfolio seems to be sure fire safe move for now (as of this writing anyway), just as with everything else in economics, investors can be fairly certain the amazing profitability of death care in general will eventually go away. It may have lasted some 30 years longer than many people would have guess, but, one thing is almost certain: it will not be lost forever.