Earnings Rise 18% At Dignity Plc

Growing network of funeral homes drives growth at Dignity plc (LON:DTY).

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Dignity (LSE: DTY), one of the largest funeral service providers in the UK, reported strong growth through the first half of the year.

Revenue was up 14% as the number of funeral homes and crematoria operated by the company increased 11% in the past year. The acquisition of Yew Holding’s 40 funeral homes in January helped drive a significant portion of this growth.

That strong revenue growth translated into even better profit and cash flow growth as operating profits were up 16% and operating cash flow was up 15%.

Perhaps unexpectedly, Dignity is currently trading at a price-to-earnings multiple over 22 — a fairly steep price for an industry not generally known for high growth. However, Dignity has been investing in its funeral home network and taking market share in what is a fairly fragmented market, which has provided double digit earnings growth over the past five years.

Despite currently carrying a lowly 1% dividend yield — due in no small part to the 72% rise of the share price during the last year — Dignity has an impressive record of returning capital to shareholders, raising the dividend by 10% annually in addition to occasional special dividends.

The company is planning another return of capital of £1.08 per share later this year. Since being listed, Dignity has returned £261 million to shareholders. Not bad for a company with a market cap of £880 million.

Of course, the company also carries £437 million of debt on its balance sheet, which may put off some investors. However, the company’s business is fairly reliable and management has done a good job of growing cash flow. Additionally, the debt doesn’t start maturing until 2023 so there is little near-term threat of financial difficulty.

The funeral business isn’t usually where investors would look for growth, but Dignity’s shares have performed quite well in the past year, which shows growth can be found in all industries.

If you’re looking other opportunities for growth investing you should read this free report on The Motley Fool’s favourite growth share for 2013.

You can get the free report just by clicking here.

> Nate does not own shares of Dignity.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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