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NEW YORK (
) -- There is nothing certain in life except death and taxes. There is nothing certain about the markets. But what if we combined the two notions? Would they create any certainty? More importantly, could they create a portfolio worthy of your after-tax money for your remaining days?
Just because an idea might seem strange or even a bit silly, that does not necessarily mean it isn't worth merit or at least worth researching. My methodology here was to bring together companies with the theme of death and taxes. Perhaps if it were an ETF, I'd get the ticker REPR, REAP or DEAD, but alas, I am not to that point yet.
I maintained an equal weighting for each equity name and looked at the portfolio as being static from setup. Rebalancing could be used along with a diversification of dividends or even option writing, but for the purposes of just keeping the initial idea simple, I avoided those steps at the beginning. Moving forward, they are normal steps I would consider for any portfolio.
|Publicly traded tax preparers fit the death-and-taxes portfolio perfectly in theme, but their performance is another matter.
The most obvious sector to use for this portfolio is personal services, with a focus on funeral services and funeral service products. This group includes
. Hillenbrand is the only one in the group that does not own funeral homes or cemeteries. Its business focuses more on products such as caskets, burial vaults and urns, while the other four are more focused on the burial process and funeral services, with some foray into products. I found it a bit ironic that some of these companies are using the term "death care," possibly to soften the initial thoughts.
Although there may not be a lot of growth in the industry, there is a steady demand. It's a bit dark to think about it that way, but it is also realistic. The companies trade with relatively attractive P/Es, but what I find more attractive are the dividends these firms continue to churn out. It's like a little lifeblood for a portfolio. StoneMor has increased its dividend by 26% since mid-2005, while Steward has increased it by 40% since that time, and Service Corp. has doubled its dividend in the same time frame. Hillenbrand is really the only laggard for increases, but it has remained steady, while Carriage Services poses the greatest risk, since its dividend is less than a year old.
Death doesn't have to be quite so obvious. Two big drivers behind death are cancer and obesity, so why not pull those into the mix? Cigarettes have the nickname "cancer sticks" for a reason, so I chose to add
(MO - Get Report)
(PM - Get Report)
to the mix, along with leaf tobacco merchant
(UVV - Get Report)
. There are several cigarette makers an investor could turn to here, so there are options, but I went with the names I had the most familiarity with in terms of trading and holding. Universal is a little outside the normal mix for me, but I really like the chart here, and the payout ratio is acceptable, along with the beta and dividend yield. All three have paid dividends for more than a decade, with a history of constantly increasing those dividends. And it doesn't appear as if smoking will be gone anytime soon.