3 Dividend Stocks as Reliable as Death and Taxes

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Lisa Springer

NEW YORK ( TheStreet) -- "The only certainties in life are death and taxes." Everyone's familiar with this old adage. Given the uncertainty of this economic recovery, wouldn't it be nice to have an investment just as reliable?

The good news is income investors can come pretty close to this and lock in predictable returns by owning stocks of companies that operate in these fields -- death and taxes.
As the death rate rises to a projected 9.7 deaths per 1,000 Americans in the next 20 years, companies in the death-care industries -- such as Hillenbrand and Stonemor Partners -- can make good investments.

It may sound morbid, but death is a growing business. The U.S. Census Bureau estimates that roughly 2.5 million Americans die each year, and the aging population of baby boomers means the mortality rate is likely to rise in the coming years. At present, the annual death rate should hover near 8.3 deaths for every 1,000 Americans, but the progressive aging of the U.S. population will trigger steady growth of the death rate to about 9.7 deaths per 1,000 Americans in the next 20 years.

Taxes might not be quite as morbid as death, but it's still unpleasant. And between that and the fact that our tax code is overwhelmingly complicated, people need help getting their affairs in order when Uncle Sam comes knocking.

Here are two death-care stocks and a tax-services stock that pay rich dividends.

1. Hillenbrand ( HI)
Yield: 4%
Hillenbrand is a major player in the death-care industry. The company's subsidiary, Bateville Casket, is the world's largest maker of caskets, holding a nearly 50% share of the market. Hillenbrand re-invests reliable cash flow generated by its casket segment in its fast-growing process-equipment businesses. This includes K-Tron, which makes conveyer equipment; Rotex, a maker of sifters and separation equipment; and the Size Reduction Group, which makes crushers that process 75% of all the coal produced in the United States.

Hillenbrand was spun off from its former parent Hill-Rom ( HRC) in 2008, so it has a short history as a public company, though Batesville has been making caskets for more than 100 years. In the past five years, Hillenbrand has grown sales by 9% a year and increased earnings at a 5% annual rate.

Last year, the company easily beat analyst estimates by delivering $883.4 million in revenue, an 18% increase from 2010. Its $106.1 million in earnings was a 15% improvement from the year-ago period. Hillenbrand expects 13% to 17% revenue growth this year, which will likely be fueled by double-digit growth in the process-equipment segment. Earnings growth is expected to be flat this year due to the absence of one-time items that boosted the company's income statement last year.

Despite that, analysts say Hillenbrand could achieve at least 8% earnings growth in each of the next five years.

Dividend growth has averaged a rich 13% a year, but recent dividend hikes have been more modest because Hillenbrand has been more focused on paying down acquisition-related debt. The last increase was a $0.01 hike in December to a 77-cent annual rate. Still, payout is affordable at just 42% of earnings, while the yield is generous at almost 4%. Stronger dividend increases are likely as debt declines.

2. Stonemor Partners ( STON)
Yield: 9%
Stonemor Partners is the nation's second-largest owner and operator of funeral homes. The limited partnership operates 272 cemeteries and 69 funeral homes in 28 states and Puerto Rico.

The business grows by acquisitions and is finding ample purchase opportunities. Revenue has grown 15% a year for the past five years. In 2011 alone, revenue improved 16%, to $228 million, as a result of acquisitions that were concluded during the year. While operating profits improved 28%, to $48.6 million, in comparison with 2010, a $9.7 million net loss was recorded due to nonrecurring items and events.

Stonmor's distributable cash flow rose 29% last year to, $49.3 million, which readily covered $44.6 million of distributions. Analysts expect Stonemor to deliver 13% income growth in each of the next five years. Dividends have risen each of the past seven years to the current $2.34 annualized rate, giving the shares a generous yield of almost 9%.

3. H&R Block ( HRB)
Yield: 5%
One of the world's largest tax services providers, H&R Block mainly competes with Intuit ( INTU) and Jackson Hewitt. H&R Block estimates it prepares one in every seven U.S. tax returns.

Aggressive ad spending paid off with a second straight year of client growth in 2011 and a record 22.2 million tax returns prepared -- nearly 1 million more clients than 2010.

This steady performer has produced 9% yearly growth for five years, but because it's dealing with higher costs this year, it plans to cut $100 million from spending by closing 200 company-owned stores. No earnings growth is expected in fiscal 2012 (ending in April), but analyst say growth will resume next year and average 12% in each of the next five years.

H&R Block has a 35-year dividend history. The last increase was in December, with a huge 33% boost that pushed the yield above 5%. The 48% payout ratio means H&R Block should be able to maintain or even increase dividends going forward.

Risks to consider: H&R Block faces sizable legal claims relating to a shuttered subprime mortgage unit. Stonmor's heavy $194 million debt is a concern, since it exceeds $180 million of stockholder equity. The balance sheet is improving, however, and ratings agency Standard & Poor's recently upgraded Stonmor's corporate debt rating from "CCC+" to "B-".

Action to take: My top pick overall is Stonmor Partners. If you like generous yields and predictable growth, this limited partnership is hard to beat. Investors who want more diversification and upside potential with their income may prefer Hillenbrand for its fast-growing processing-equipment businesses. H&R Block offers a nice yield and could be a good choice once all the legal claims against its Sand Canyon mortgage subsidiary are finally resolved. But in the long term, all three of these stocks are fit to provide investors with reliable dividend payments.

>>To see these stocks in action, visit the 3 Dividend Stocks as Reliable as Death and Taxes portfolio on Stockpickr.

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