Dividend-News

Why StoneMor Will Eliminate Its Dividend - 4 Warning Signs

Published Sat, 02 Sep 2017 05:24:35 -0400 on Seeking Alpha

Investment Thesis - Sell StoneMor Partners L.P. (NYSE: STON) as dividend elimination will drive the stock well below $5/share.
Business Overview StoneMor provides funeral and cemetery products and services in the United States as an owner or operator of 317 cemeteries and 105 funeral homes ($238 MM market cap @ closing price of 6.59 on 9/1/2017). StoneMor is structured as an MLP and is a “roll-up” that has been built through acquisitions. Revenue is roughly 80% cemeteries (lots, vaults, crypts, mausoleums, markers, opening & closing services, and marker installation) and 21% funerals (caskets and funeral services).
Warning Sign #1: StoneMor can no longer rely on stock and debt issuance to fund the dividend As illustrated in the graph below, Share Issuance ($362 MM) and Net Borrowings ($62 MM) have been by far the largest sources of cash flow. With the dramatic decline in stock price and a debt rating that is way below investment grade, these cash sources have dried up.
Over the last three years, free cash flow (cash flow from operations - capex) has been negative (-$16MM). The only positive cash flow has been from working capital changes ($41 MM). Working capital builds up on the balance sheet over time since the majority of StoneMor’s revenues are “pre-need” sales where a customer pre-pays for future services. This creates a large deferred revenue backlog as StoneMor can’t record the revenues until it performs the services. Funds... Read more