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There is an old saying that the only two certainties in life are death and taxes. One company, StoneMor Partners LP (NASDAQ: STON) has built up a large and highly successful business based on this concept.
StoneMor owns and operates cemeteries across the United States. It also offers funeral-related products like caskets and urns. As of March 13, the company owned and operated 303 cemeteries and 98 funeral homes in 28 states and Puerto Rico. StoneMor is a major player in this industry, but when compared to other stocks, its $850 million market capitalization qualifies it as a small-cap stock.
As a result, StoneMor as an investment opportunity most likely flies under investors’ radars. But it does have something to offer: a huge yield, which currently exceeds 9%. StoneMor earnings were released on Monday, and investors should know that the company did exactly what it needs to do to keep that distribution flowing.
A Solid Quarter in the Books
In the second quarter, StoneMor’s GAAP revenue grew 13% year-over-year, a record for the company. It saw strong results across its operations, including sales growth in pre-need and at-need cemetery services, as well as 20% growth in funeral home services. Lastly, StoneMor’s investment income from trusts soared 62% last quarter.
Another key metric for a partnership is distributable cash flow, which is a non-GAAP metric that determines how much cash a partnership can return to its investors. Distributable cash flow for StoneMor clocked in at $19.2 million last quarter, representing excellent 25% year-over-year growth.
Such strong growth in revenue and distributable cash flow allows StoneMor to regularly increase its distribution, which is a big advantage for investors looking for yield.
A Rare Breed in the MLP Space
StoneMor carries such a high distribution yield because it is classified as a master limited partnership. This allows it a favorable tax structure, and in exchange, it is required to distribute the vast majority of its cash flow to investors as a distribution.
That means income investors are in a great position to profit. StoneMor yields 9.5% based on its Monday closing price. Even better, it has a track record of increasing its distribution. For example, on July 24, StoneMor bumped up its distribution from $0.64 per unit to $0.65 per unit.
This one-penny per unit bump might not sound like much, but these regular increases really add up over time. Last quarter was the fifth in a row that StoneMor raised its distribution. On a year-over-year basis, its quarterly distribution is up 6.5%, which is quite a strong growth rate for such a high-yielder.
An Attractive Income Opportunity
StoneMor’s mission is to maximize revenue at its existing properties, and use excess cash flow above the distribution to acquire new properties, which fuels future growth. Last quarter, the company acquired one more cemetery and four funeral homes.
The bottom line is that this results in a steady, snowball effect of rising revenue, distributable cash flow and distributions. StoneMor might not be a household name for most investors, but unless humans discover immortality, its cash flow and distributions should remain steady for the foreseeable future.
Dividends for Every Month of the Year
If you’re looking for just one dividend stock to round out your income stream, consider a little-known company that pays out dividends 12 months of the year.
Click here to see the full details of this company in my Dividend Calendar…