There aren't many shares that I would suggest every investor should be interested in, but InvoCare Limited (ASX: IVC) is one of them.
InvoCare is Australia's leading funeral operator with a market share of around a third. It's a fairly morbid investment idea, but it shouldn't be ruled out.
Here are three reasons why InvoCare could be a strong investment:
Defensive earnings
The sad reality is that a certain amount of people die each year and most of these people have a funeral. The amount of deaths each year provides InvoCare with reliable earnings, which makes InvoCare very defensive.
Some readers may question the morals of making a profit on families having funerals, but it's a valuable service and people choose to use it.
Growth industry
The population growth of Australia over the decades has increased the potential pool of clients. Death is one of the certain things in life and more people means more future funerals.
The ageing demographics of Australia are predicted to result in the death rate increasing at a faster rate every year until the 2030s, with the number of deaths each year expected to keep increasing for decades further into the future.
As long as InvoCare can maintain its market share of the funeral industry then it has a very rosy future.
Increasing margins
The key to InvoCare beating the market over the long-term will be its increasing profit margins. In its latest report to 30 June 2017 it revealed that the operating earnings before interest, tax, depreciation and amortisation margin increased from 22% to 23.8%.
The increasing margins is the main factor for why the operating earnings per share increased by 13.2% compared to the prior corresponding period.
Foolish takeaway
InvoCare is currently trading at 26x FY18's estimated earnings with a fully franked dividend yield of 2.89%. This definitely isn't cheap, but I think it's well worth the price for how defensive it is and the long-term growth potential.
