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3 reasons why I think the InvoCare Limited (ASX:IVC) share price looks attractive

The InvoCare Limited (ASX: IVC) share price is currently sitting at $12.37, which is 20% lower than it was a year ago. Falling share prices aren’t seen as a good thing – they’re not good for existing shareholders, but for buyers it’s good.

Here are my three reasons why I think the InvoCare share price is so attractive to buy:

Very defensive

InvoCare is Australia and New Zealand’s largest funeral operator. The sad reality is that a certain number of people die each year, sadly it’s one of life’s certainties. InvoCare has a market share of roughly a third, this means it has an almost guaranteed level of revenue and earnings each year.

A funeral is one of those things that people will continue to pay for, even through economic downturns. It helps that products like funeral insurance exist to assist in funding, as well as prepaid funerals.

Growth

The funeral industry is sadly a growing industry due to Australia’s ageing population. The tailwind is strong because death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050. This should lead to slow-and-steady organic growth for a long time to come.

InvoCare is also investing heavily in refurbishing its locations to cater better for family desires to celebrate rather than mourn. The change is visually stunning and I can see why management have said early signs show earnings before interest, tax, depreciation and amortisation (EBITDA) is 30% better than expectations at these locations. However, this is painful in the short-term because it has to pay for the renovations and it loses the revenue in the meantime.

The company is also setting up additional shopfronts surrounding its funeral homes so that it can send additional services to InvoCare locations.

Rising dividend income

The decline in the share price has sent the grossed-up dividend yield up to 5.2%, which is a solid source of income.

Aside from the recent half-year result, InvoCare has increased its dividend every year for over a decade. That is a very powerful income stream.

I hope that as InvoCare’s dividend will continue to rise over the decades as InvoCare’s earnings get stronger.

Foolish takeaway

InvoCare is currently trading at under 22x FY19’s estimated earnings. Whilst this isn’t cheap I think it reflects the long-term growth potential of the company. I would be happy to buy a parcel today as I believe the share price will have recovered in the next 18 months or so.

In the longer-term there could be price competition with Propel Funeral Partners Ltd (ASX: PFP), so that’s something to look out for.

This little known ASX share is even more defensive than InvoCare – it’s projected to grow profit even faster if a recession occurs.

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Motley Fool contributor Tristan Harrison owns shares of InvoCare Limited and Propel Funeral Partners Ltd. The Motley Fool Australia has recommended InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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