As investors we're always on the lookout for good investments that are likely to grow as we expect them to. Shares are seen as risky, even though it's been shown for decades that shares provide much better returns than cash.
What if there is a business that has ultra-long tailwinds, in an extremely defensive industry, with a strong track record of growing its dividend and share price for many years? That sounds like an attractive investment to me.
Invocare Ltd (ASX: IVC) is the business I'm talking about. It's the $1.5 billion operator of funerals and cemeteries. Here are my reasons why I own Invocare shares and why I think it should be in your portfolio:
Defensive industry
The funeral industry is a defensive sector because sadly the reality is that most deaths happen with no correlation to economic cycles or government policy.
With Invocare having around 33% market share of the funeral business, it has a fairly certain amount of revenue each year. It also has different brands for different price points, such as White Lady Funerals for higher cost and Value Funerals for the lower cost options.
This reliable revenue translates into reliable profits for Invocare, meaning it will be one of the most reliable businesses even if another GFC were to occur.
Long term growth of the death rate
The number of Australians is growing every year which means there are a growing number of people that will pass away.
The Australian Bureau of Statistics has predicted that the 'death rate' will increase on average every year until 2034 when it peaks at 2.8% average growth. There aren't many companies on the ASX that can point to probable growth for the next two decades.
Overseas expansion plans
Invocare has a fairly big growth potential thanks to its growing USA business. Currently, it's only operating in Southern California and grew revenue from $0.5 million to $1.5 million recently. These are small numbers in the scheme of things, but the USA's population is much larger than Australia so in several years it could play a big part of earnings.
At the moment it has operations in Australia, New Zealand, Singapore and the USA. These aren't the only countries in the world that Invocare could expand into, so watch out for growth plans in the future.
Risks
Invocare will likely never trade at a cheap price compared to the market because it has such defensive characteristics. However, there is always a chance that its shares might be viewed as too expensive if it doesn't keep up the growth it has achieved over the past few years.
It's imperative that it maintains its 33% market share of the Australian market, low cost competition could become a problem in the future if Invocare increased its prices by too much.
Time to buy?
Invocare has increased its dividend every year since 2005, making it one of the most reliable dividend stocks on the ASX. It's currently trading at 25x FY17's estimated earnings with a grossed up dividend yield of 4.18%.
As I mentioned above, Invocare isn't cheap so there may be a cheaper time to buy its shares, but I think it's definitely worthy of a place in any Foolish portfolio. However, for a cheaper dividend stock with a bigger yield and even more exciting growth you should definitely read this report.
