Service Corporation International: A Dividend Powerhouse in the Deathcare Sector

Service Corporation International (SCI) has long been a cornerstone of the deathcare industry, and its Q2 2025 results reaffirm its status as a dividend stalwart. With a 1.62% yield, a 33.29% payout ratio, and an 11-year dividend growth streak, SCI's financial resilience and operational scale make it a compelling case study for income-focused investors. However, the company's future dividend sustainability hinges on navigating macroeconomic risks and leveraging its competitive advantages in a sector shaped by demographic tailwinds.

Strong Q2 Performance Bolsters Dividend Foundation

SCI's Q2 2025 earnings report delivered a robust foundation for its dividend program. Revenue rose to $1.065 billion, up 3.1% year-over-year, driven by a 14.8% increase in comparable funeral gross profit. Adjusted earnings per share (EPS) surged 11% to $0.88, outpacing the $0.85 consensus estimate. This growth was fueled by higher average revenue per funeral service, cost discipline, and a shift to a more favorable preneed insurance provider.

The company's cash flow generation is equally impressive. SCI raised its 2025 operating cash flow guidance to $880–$940 million, reflecting lower cash taxes and improved working capital. This translates to a payout ratio of 33.29% for Q2 2025, well below the 40.8% sector average for consumer cyclicals. Such a conservative payout ratio provides a buffer against volatility, ensuring dividends remain secure even in downturns.

11-Year Dividend Growth Streak: A Testament to Discipline

SCI's 11-year dividend growth streak, with a compound annual growth rate (CAGR) of 7.1%, underscores its commitment to shareholder returns. From $0.10 per share in 2015 to $0.32 in 2025, the company has consistently increased payouts while maintaining a yield that aligns with its 5-year historical average of 1.6%. This reliability is rare in a sector often perceived as defensive but low-growth.

The 1.62% yield, while modest compared to high-yield equities, is attractive in a low-interest-rate environment. SCI's ability to balance growth and returns is further highlighted by its $239 million in shareholder returns during Q2 2025, including $91 million in dividends and $148 million in share repurchases.

Operational Scale and Financial Resilience

SCI's dominance in the deathcare sector—operating 1,485 funeral homes and 498 cemeteries across 44 U.S. states and Canada—provides a moat against competition. Its Dignity Memorial brand, known for premium services, contributes to pricing power. The company's 57.1% cremation rate in Q2 2025 reflects evolving consumer preferences, a trend SCI is capitalizing on through digital modernization and expanded cremation offerings.

Financially, SCI's leverage ratio of 3.68x net debt to EBITDA is within its target range of 3.5–4x, and its $1.4 billion liquidity position (including $250 million in cash and $1.2 billion in credit facilities) ensures flexibility. This strength is critical for funding $315 million in 2025 capital expenditures, including cemetery development and digital infrastructure upgrades.

Risks and Mitigants

Despite its strengths, SCI faces headwinds. Rising cremation rates could pressure traditional funeral home margins, while preneed funeral sales temporarily declined 8.8% in Q2 2025 due to insurance transition costs. Management, however, expects this to stabilize in 2026.

External risks include regulatory changes (e.g., FTC rules on preneed contracts) and macroeconomic shocks, such as inflation or recession. SCI's conservative payout ratio and $880–$940 million cash flow guidance provide a cushion, but investors should monitor its debt levels and cash tax exposure.

Investment Outlook: A Buy for Long-Term Income Seekers

SCI's combination of a reliable yield, disciplined capital allocation, and demographic-driven growth makes it a compelling long-term holding. The aging Baby Boomer population and rising cremation demand create a durable revenue base, while its 8–12% long-term growth algorithm suggests further upside.

For investors, the key question is whether the 1.62% yield justifies the risk. Given SCI's financial resilience, low payout ratio, and strategic investments in digital and cemetery development, the answer leans toward “yes.” However, prudence dictates hedging against sector-specific risks, such as regulatory shifts or margin compression in funeral services.

In conclusion, Service Corporation International offers a rare blend of dividend security and growth potential in a sector insulated from economic cycles. While not without risks, its Q2 2025 performance and 11-year dividend streak position it as a top-tier income stock for investors with a 5–10 year horizon.