Service Corporation Rewards Shareholders, Boosts Buyback Plan

Service Corporation International SCI is focused on enhancing shareholders’ value through dividend payments as well as share buyback programs. In sync with this, the company announced that it has expanded the share repurchase program. The company increased the program by $431 million.

The company already has the right to buy back shares worth $69 million under its existing stock repurchase plan, as of Aug 12, 2020. The newly-unveiled program now takes the total share buyback authority to $500 million as of Aug 12. Notably, Service Corporation repurchased 5,117,807 shares for $210.6 million in the first half of 2020. After Jun 30, the company repurchased 791,744 shares.

At a juncture where companies are suspending dividends to preserve financial flexibility amid COVID-19, Service Corporation announced a quarterly dividend of 19 cents a share on common stock. The dividend will be payable on Sep 30 to stockholders of record as on Sep 15. We note that the company’s current annualized dividend rate of 76 cents a share reflects 5.6% increase from the year-ago period’s figure.

Notably, Service Corporation has a dividend payout of 38.4%, dividend yield of 1.6% and free cash flow yield of 7.6%. With an annual free cash flow return on investment of 10.9%, ahead of the industry’s nearly 10%; the dividend payment is likely to be sustainable.

Factors Driving Growth

The company is committed toward pursuing strategic buyouts and building new funeral homes to generate greater returns. During the second quarter of 2020, the company incurred capital expenditures of $52.6 million. These were directed toward capital enhancements at currently operating locations, development of cemetery property and expenditures for construction of new funeral service locations. These investments are touted to be accretive to the company in the near term. Also, management is focused on seeking acquisition opportunities. Moreover, the company anticipates spending capital on new funeral homes and expansion opportunities to increase its footprint.

In 2018, the company deployed approximately $200 million towards acquisitions. Some notable acquisitions made by the company in the past include Alderwoods Group, Keystone North America, The Neptune Society, and Stewart Enterprises. Also, buyouts in the cemetery segment are aimed at exploiting increased opportunities to cater to Baby Boomers.

Apart from these, the company has been benefiting on increased funerals performed due to higher deaths amid coronavirus, which along with cost management drove its performance in the second quarter. Both earnings and revenues improved year over year and beat the Zacks Consensus Estimate during the quarter.

We note that shares of the Zacks Rank #3 (Hold) company have gained 5.5% in the year-to-date period against the industry’s decline of 1.1%.

Top 3 Picks

Carriage Services CSV has a long-term earnings growth rate of 15% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Campbell Soup Company CPB has a long-term earnings growth rate of 8.9% and a Zacks Rank #2.

Helen of Troy HELE has a long-term earnings growth rate of 6.5% and a Zacks Rank #2.

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