Anticipation for the U.S. presidential election has roiled the financial markets, triggering volatility and sending the S&P 500 Index (SPY ) to its first nine-day losing streak since 1980.
The possibility of a Donald Trump presidency has politicized the equity markets, leading many investors to cut ties to riskier assets or remain on the sidelines altogether. The threat of a widening email scandal has also weighed on the prospects of Democratic candidate Hillary Clinton – one that could stretch beyond her inauguration. Regardless of who gets elected November 8, there are a few niche industries that are independent of the political process. Investors should therefore pay close attention to these sectors to hedge against both candidates’ baggage.
The 2016 presidential race will go down as one of the most unconventional in U.S. history. The rise of anti-establishment candidates, such as Democrat Bernie Sanders and Republican Donald Trump, changed political discourse fundamentally. In the case of Trump, that discourse has polarized the nation – a fact not lost on the financial markets. While a Trump presidency is expected to boost the aerospace, health insurance and traditional energy sectors, his election will undoubtedly unleash turmoil on the markets. Citigroup expects the S&P 500 to plunge 5% should Donald Trump win the ballot.
As a known commodity, Hillary Clinton’s election will likely be viewed more positively on Wall Street, despite her deliberate vagueness on key issues such as the Trans-Pacific Partnership (TPP) and her tough stance on prescription drug prices. Clinton’s ties to Wall Street also raise ethical concerns about concentrated power wielding tremendous influence over U.S. politics. Like Trump, Clinton has prioritized homeland security and the military, which likely bodes well for the aerospace and defense sector. Like her predecessor Barack Obama, Clinton is also expected to lift alternative energy stocks as the Democrats seek to address climate change.
With the exception of aerospace and defense, none of the sectors that Trump and Clinton are supposed to take to the Promise Land have performed well over the past 12 months. Rather than speculate on how these sectors will perform under either President, investors will find it more beneficial to focus on stocks that are less vulnerable to the economic cycle or political climate. For versatile plays during periods of uncertainty, death care and pet care stocks make excellent choices.
The Death Care Industry
It’s often said there are only two things certain in life: death and taxes. The death care industry makes its fortune on the former. Regardless of the political environment or economic cycle, people still die. While it may seem morbid, there’s an industry that takes care of that too.
Each year, more than 2.6 million people die in the United States. This makes death a very big business. Some estimates show that the process of dying has created a $20 billion economy – a figure expected to grow as the population continues to age. With the average funeral costing up to $10,000, death care is a profitable business. Below are two high-dividend stocks capitalizing on America’s growing death care industry.
Hillenbrand, Inc. (HI ) is one of the most well-known dividend plays from the grave. Hillenbrand is a diversified manufacturing company that operates several brands. Its Batesville-based company deals with death including designing, manufacturing and selling burial caskets, cremation caskets and memorial products. It currently yields a payout ratio of 40.5%, a figure that has been rising steadily for the past several years. Its dividend yield is 2.78% with consistent payouts for eight years running. In addition to high dividend yield, HI boasts stable growth and solid underlying fundamentals. The stock currently has a P/E ratio (TTM) of 15.00, which is comparable to the broader industrial sector’s anticipated full-year P/E of 18.07. HI stock has barely broken even this year, but has enjoyed stronger momentum in the months leading up to the election.
Service Corporation International
Based in Houston and traded on the New York Stock Exchange, Service Corporation International (SCI ) provides death care services across North America, specializing in funerals and cemetery services. These include burial preparation, embalming services and cremations. SCI currently yields 2.09% with a payout ratio of 41.9%. Both figures have risen steadily over the past two years in lockstep with the company, which generates nearly $3 billion in revenue and employs roughly 24,000 workers across 2,000 locations. Its current P/E ratio of 18.70 (TTM) aligns with the consumer discretionary average. SCI stock has underperformed the sector average this year, but has enjoyed virtually uninterrupted growth since 2011, with its share price more than tripling through 2015. For a detailed analysis of the death care market, take a look at New Life in the Deathcare Industry.
The Pet Care Industry
Consumers’ devotion to their pets has spawned a booming pet care industry that’s worth roughly $63 billion annually in the United States alone. In fact, the industry has not had a down year in terms of growth in decades. The industry experienced uninterrupted growth during the Great Recession and has maintained its solid expansion ever since.
Pet care is a diverse sector that includes food, medicine and supplies, veterinary care, live purchases and pet services. Food accounts for roughly 38% of the market, with veterinary care making up roughly one quarter. Defensive investors looking to safeguard against election-related volatility will find plenty of opportunity with high-yielding pet care stocks. The following are two examples.
PetMed Express Inc.
PetMed Express, Inc. (PETS ) is a pet pharmacy that offers both prescription and non-prescription pet medication, as well as health supplements. The company has been described as the Amazon of the pet market, both for its accessibility and service offerings. The company boasts a year-to-date return of nearly 13%. By comparison, the S&P 500 Index has returned roughly 2% over the same period. The consumer discretionary sector, which contains PETS, has declined roughly 2% over that period. PetMed Express has a yield of 3.93% with a very high payout ratio of 70.4%. The company has paid out dividends for four consecutive years. Its current P/E ratio (TTM) of 18.05 lines up well with the expected consumer discretionary average of 18.39.
Merck & Co
Merck & Co. (MRK ) is a different kind of health care company. It has returned over 11% in 2016, bucking the general downtrend in the pharmaceutical, biotechnology and life sciences industries. These industries have declined between 4% and 19% this year, as the overall health sector shed nearly 9%. While pre-election jitters haven’t been too kind to health stocks, MRK has emerged as a key player in the animal health segment. Its animal health market is active in more than 140 countries, where it reported annualized revenue growth of 5% in the third quarter. Investors may also want to consider the Health Care Select Sector SPDR ETF (XLV ), which holds nearly 6% of its total assets in Merck & Co. Merck has a dividend yield of 3.13% with a payout ratio of 48.9%. The company has had four consecutive years of dividend growth. It has a P/E ratio (TTM) of 22.50. By comparison, the 2016 estimated health care average is 28.68.
The Bottom Line
Regardless of who wins the election, death care and pet care are two potentially powerful plays for dividend investors seeking steady growth in recession-resistant sectors. These four stocks only scratch the surface of quality plays in the death care and pet care industries. You can find out if any of these or any other death care and pet scare stocks are going ex-dividend as early as next week in our Ex-Dividend Screener. For a detailed analysis of the pet care industry, check out Man’s Best Friend: Dogs, Cats and Dividends.
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