Growth vs. Income | Funeral Director Daily

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Last week I read this article authored by Kenio Fontes from Seeking Alpha concerning Death Care behometh Service Corporation International (SCI) and titled “The quiet dividend machine you probably overlooked“.  As is the custom of Funeral Director Daily I will not comment on the specifics of a stock market related article, but it brings about an issue for me in trying to define retail funeral businesses as “Growth” investments or “Income” investments.

Let’s start with my simple explanations of “Growth” vs. “Income” investments.  In a “Growth” investment, I put in $10 for a share of stock and hope that at some point in time that stock “grows” to a value of $15 or $20 (or more).  I then gain from the sale of the stock at some point in time.

With an “Income” investment I’m not so worried about the growth of the share of stock but want to collect the annual dividend that the company pays on its earnings.  Let’s say a $10 share of stock pays a 50 cent dividend — that would be equal to a 5% annual income return.  And, I always look for companies that continuously raise their dividends — let’s say that same company pays a 60 cent divident the following year.  Well, that’s equal to a 6% return on my original $10 investment.  If this continues, what you have, in essence, is something akin to a certificate of deposit that pays a “step up” dividend, or rate, each year on your initial investment.  Finally, if purchased for “income” one is not so concerned with the increased growth of the stock. . . as long as it does not lose value.

So, with that preamble, is a retail Death Care stock, such as SCI, a growth or income story — or a little of both?  And, might the investor world be changing their outlook on how one looks at an investment in SCI with the increasing number of direct cremation and other changes in Death Care?

According to Seeking Alpha, Service Corporation International stock has grown at a rate of 179% for the last ten years.  So, every $1,000 invested in SCI in 2015 is approximately worth $2,797 today.  In addition, SCI is paying a current dividend yield of 1.57% which, if that rate had been constant, would have paid a stockholder with that initial investment of $1,000 about another $157 over that ten-year time.

Today’s Value of $1,000 invested in 2015

Let’s compare that to another company located in my vicinity in another industry that is historically seen as an “income” industry with low growth —  that being the power generation industry.  If you had invested that same $1,000 in Otter Tail Power in 2015 that would have, according to Seeking Alpha, grown to about $2,895 today and with a current dividend of 2.67% collected you would have added another $267 in dividends.

So, my purpose today is not to compare these two companies, but to wonder if Death Care public companies should be looked upon more as “Income” opportunities — with dividends being raised for investors and less capital spent on the “Growth” side for acquisitions — or if the companies should continue to spend on and borrow for acquisitions fueling hoped-for growth in valuations?  I think it is an interesting question.

Tom Anderson
Funeral Director Daily

On the flip side of our comparison today, we have the utility industry which has for a long period of time been looked on as stable “Income” opportunities, now being looked on by some as “Growth” investment vehicles because of the amounts being spent on artificial intelligence and the need for more power generation for that medium.

Finally, the stodgy utility industry, at least in our comparison of Otter Tail Power and Service Corporation International shows more percentage revenue growth than the Death Care industry.  SCI, in their last full pre-pandemic year of 2019, listed revenue as $3.19 billion.  In 2024 they listed that revenue number as $4.19 billion — an increase of 31.2% over the time period.

Otter Tail Power showed revenue of $919.5 million in 2019 and  1.32 billion in 2024 — an increase of 43.6% over the same time period.  Again, it is one utility company vs. one Death Care company, but the teeter-totter of “Income vs. Growth” definitions seems to be moving.

Final Thought — The vast majority of funeral homes in North America are not owned by public stock market companies.  They are individual ownership much like I owned my firm for 33 years.  And, it is interesting because the owners of those firms much like me, don’t always realize it, but they balance “Income vs. Growth” also.

Those owners balance that equation by what amount of cash you take out of the business for yourself year after year and what amount of resources you put into growth  — which might be indicative of advertising, other marketing, staffing such as preneed personnel, physical additions, acquisitions,  and the like.

So, whether you are an investor or a funeral home owner make sure that you balance “Income vs. Growth” and your expectations with an idea of what is happening in the business environment that surrounds you.

Disclaimer — The author of this article for Funeral Director Daily is a shareholder of Service Corporation International and Otter Tail Power.

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