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Service Corporation's (SCI) Shareholder-Friendly Moves Bode Well

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Service Corporation International’s (SCI - Free Report) robust financial flexibility has been enabling it to enhance shareholder returns for a while now. Moving on these lines, the company announced an expansion to its share repurchase program on May 12. The deathcare products and services provider boosted its authorized buyback level by roughly $414 million.

This, together with about $86 million remaining under the current program, takes the company’s total authorization to nearly $500 million, effective May 12, 2021.  Apart from this, Service Corporation is also focused on rewarding shareholders through regular dividend payments. The company approved a quarterly cash dividend of 21 cents per share, which is payable on Jun 30, 2021, to shareholders of record as of Jun 15.

Notably, Service Corporation currently has a dividend payout ratio of 22%, a dividend yield of 1.5% and a free cash flow yield of 7.7%. With an annual free cash flow return on investment of 13.8%, the dividend payment is likely to be sustainable.  

Well, the company keeps raising its dividend from time to time to increase shareholders’ returns. Service Corporation last raised its dividend in November 2020 from 19 cents to 21 cents. These factors reflect the company’s commitment toward shareholders as well as its strong cash flow position. Incidentally, the company’s net cash provided by operating activities amounted to $297.6 million in first-quarter 2021. Further, management expects adjusted net cash from operating activities to be $650-$725 million for 2021.

Service Corporation’s strong cash flow helps it undertake efficient capital allocation. In the first quarter of 2021, the company spent $140 million toward dividends and share buybacks, including dividends worth roughly $36 million. Additionally, the company repaid its credit facility by $80 million during the first quarter.

What’s More

The company has been gaining on higher funeral services performed as well as increased burials in its cemeteries amid the pandemic-led increased mortality, which along with a solid cost structure aided its first-quarter 2021 results. During the quarter, both earnings and revenues improved year over year and surpassed the Zacks Consensus Estimate. Incidentally, both Funeral and Cemetery segments benefited from higher core revenues. The bottom line was backed by an elevated gross profit resulting from increased funeral services and burials performed along with a robust increase in cemetery-recognized preneed revenues.

Based on the sturdy performance witnessed during the first quarter, management raised its bottom-line projection for 2021. It now envisions adjusted earnings per share of $2.70-$3.00 compared with $2.50-$2.90 projected earlier. The company’s guidance for the year is wider than usual due to the uncertainty surrounding the COVID-19 impact. We note that the company’s earnings came in at $2.91 per share in 2020.  

Additionally, management informed that the company is on track with its long-term earnings growth framework. Accordingly, it will maintain focus on its core strategies that include growing revenues by remaining relevant to client families, leveraging scale and maximizing capital deployment opportunities.

Impressively, this Zacks Rank #2 (Buy) company’s shares have rallied 13.7% in the past three months compared with the industry’s growth of 12.5%.

Other Solid Consumer Staple Picks

Medifast (MED - Free Report) , which currently carries a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 12.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Carriage Services (CSV - Free Report) has a Zacks Rank #2 and its bottom line outpaced the Zacks Consensus Estimate by 36.4% in the trailing four quarters, on average.

Matthews International (MATW - Free Report) has a Zacks Rank #2 and its bottom line outpaced the Zacks Consensus Estimate by 32.2% in the trailing four quarters, on average.

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