Stonemor: High Yield from Grim Reaper

09/17/2015 8:00 am EST


Most master limited partnerships are involved in energy ; here, I want to introduce an unconventional MLP, notes Robert Rapier, editor of MLP Investing.

Early in my investing career, I made what ultimately turned out to be a very good long-term decision. I figured that as the Baby Boomers grew older, they would likely spur a boom in the pharmaceutical industry.

About a decade later, I was telling a friend about my rationale for investing in the sector. He paused for a moment and then said "I guess in 20 years you may want to think about moving some of that money into funeral homes."

My first thought was "My gosh, that's morbid," but then I decided that maybe he had a point.

There were a total of about 76 million births in the US from 1946 to 1964, the period usually called the "baby boom."

At present, about 99% of those Baby Boomers are still alive, but those numbers are projected to steadily decline over the next few decades.

Of course this means more business for the funeral industry. Not only does this mean more funerals, but it also means more pre-sales to the Baby Boomers who plan ahead.

And there is a way for MLP investors to invest in the space. StoneMor Partners (STON), which owns and operates 304 cemeteries and 102 funeral homes in 28 states and Puerto Rico.

It is the only operator in this space organized as an MLP. Unlisted StoneMor GP LLC serves as the general partner of StoneMor Partners. StoneMor was founded in 1999 and is headquartered in Pennsylvania.

StoneMor debuted as a publicly traded partnership in 2004; at that time, revenue was $89 million and operating profit was $29 million.

For the most recent 12 months, Stonemor had revenue of $386 million and operating profit of $66.7 million.

StoneMor has been aggressive at making acquisitions since its IPO. It employs a disciplined acquisition strategy with specific target criteria for cemeteries and funeral homes.

Following the most recent quarter, StoneMor increased the quarterly distribution by $0.01 per unit to $0.65/unit or $2.60 on an annualized basis.

StoneMor has increased the annual distribution every year since its IPO and the latest payout translates to an annualized yield of 9.5%.

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