As the old saying goes, the only two certainties in life are death and taxes. Meaning, these are about the only two things investors can count on to happen each and every year, without interruption.
These two certainties have given birth to highly profitable companies that generate steady profits and pump out reliable dividends thanks to the inevitability of their products and services.
In that vein, two dividend stocks that profit greatly from life’s only two certainties are cemetery operator StoneMor Partners LP (NYSE: STON) and tax preparer H&R Block (NYSE: HRB).
StoneMor is a small-cap stock, with an $888 million market capitalization. But it’s a leader in the funeral and cemetery services industry. As of March 13, 2015, the company owned and operated 303 cemeteries and 98 funeral homes in 28 U.S. states and Puerto Rico.
Perhaps the best argument for investing in StoneMor is the tremendous opportunity to generate income. StoneMor is classified as a master limited partnership (MLP), which means it enjoys a favorable tax structure. In exchange, the company is require to distribute the vast majority of its cash flow to investors.
As a result, investors receive a hefty 8.5% distribution yield from StoneMor. Even better, that distribution has grown like clockwork, thanks to the steady business model.
StoneMor grew revenue by 4.7% last quarter. Adjusted operating profit grew 2% year-over-year. These aren’t outstanding growth numbers, but its business model isn’t about growth. It’s about generating steady cash flow to maintain the distribution, which the company has done.
Better yet, StoneMor has grown its quarterly distribution by 1 cent per unit over each of the past four quarters. Going forward, management has indicated its desire to continue raising the distribution each quarter through the end of the year.
H&R Block offers tax preparation services. In fact, it’s the world’s largest consumer tax services provider. In fiscal year 2014, H&R Block had annual revenues over $3 billion, with 24.2 million tax returns prepared worldwide. While paper returns are becoming less common, the company is offsetting this somewhat with higher online returns.
H&R Block reported that total U.S. assisted returns fell 4.6% through April 16 this year, which encompasses the critical tax return season when the company conducts most of its business for the year. However, it made up for this with 8.2% growth in tax returns prepared through its tax return software, including online, mobile and desktop applications. Because of this benefit, the company expects to generate revenue growth this fiscal year.
H&R Block has a lot to offer both value investors and income investors. The stock trades for a very reasonable 13 times earnings per share, and it offers a solid 2.5% dividend yield. These metrics compare very favorably to the broader market. The S&P 500 index, by comparison, trades for closer to 18 times earnings and averages just a 2% yield.
To suggest investing based on life’s only two certainties might seem like a joke. But more seriously, the businesses that perform the best over time typically come from industries with steady demand.
Death and taxes are two things that will always be a part of life, which means demand for products and services will remain stable. This ensures a margin of safety for StoneMor and H&R Block that many other companies do not enjoy. In turn, both companies reward shareholders with strong dividends.
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…