We were reminded of that earlier this week when the company said that a surge in the UK's death rate meant that its operating profits in the first quarter of 2015 rose almost 39 per cent on the back of 24 per cent growth in income. Consequently Dignity's share price spurted a bit more and is now 10 per cent up on the year but, more to the point, is 33 per cent above where it finished 2013 and 63 per cent higher than 2012's close.
Actually, it's not so much the acceleration in profit growth that the market likes as further confirmation of the company's reliability. Hold shares in Dignity and it's a bit like owning a guaranteed-growth bond where the growth will exceed inflation and the guarantee is - well - pretty good. As a result, Dignity's shares have attained the status - and the rating - usually reserved for the best producers of branded, fast-moving consumer staples, such as Unilever (ULVR), Imperial Tobacco (IMT) or Reckitt Benckiser (RB.).
Simultaneously, however, a paradox gets to work. The more that investors validate Dignity's merits through buying its shares, the more that the growth in the share price exceeds the growth in the company's profits and the more stretched the rating becomes. So something that is much sought after because it is low risk becomes risky; specifically, a limited amount of operational risk is replaced by financial-market risk, or the perennial risk of punters getting carried away.
Still, we can understand why they get so excited. It comes back to Benjamin Franklin's point about the certainty of death. That equates to the certainty of income for Dignity, which is the UK's second biggest operator of funerals, behind the Co-Op, and the biggest operator of crematoria, most of which are still owned by local authorities.
True, that does not necessarily turn into higher volumes. In 2014, Dignity performed 65,600 funerals, but that was less than the number it performed in 2004 - 67,600 - when its shares were listed. That is partly a function of extra competition - it's easy to start up as a funeral director. But it also results from increased longevity. In the early 1990s, deaths in the UK peaked at 640,000 a year then drifted down to 539,000 in 2011. The actuarial assessment is that the number will return to around 600,000 by 2020.
More important is Dignity's ability to generate extra revenue from its funerals. Back in 2004, average revenue per funeral was £1,609. In the following 10 years the average rose every year and by 2014 was £2,811. The average growth was 5.7 per cent a year. Progress - albeit from a lower base - was even livelier in Dignity's crematoria. The number of cremations conducted by Dignity has risen every year bar one since 2004, going from 38,400 to 53,400 last year. Meanwhile, revenue per cremation rose from £563 in 2004 to £1,034 last year and the average growth rate was 6.3 per cent. In the case of both crematoria and funerals, growth in revenue easily outstripped UK inflation, where the average rate in the 10 years was 3.1 per cent.
This has translated into wonderfully steady profits growth. Dignity's operating profit has risen every year since 2004, in the process more than doubling from £38.9m to £82.9m in 2014. Free cash flow - the money left over for shareholders, which, almost always, is more volatile than operating profits - has also been on a rising trend. More relevant, Dignity has generated aggregate free cash of £262m in the 11 years since its listing. Very conveniently, that's almost the same as the amount the company has paid in dividends - including £190m-worth of special dividends - over that period.
In other words, Dignity is a reliable cash machine that disburses. But, sooner or later, the question arises: how much would you pay for, say, £1-worth of disbursements from this cash machine? In the past few years, investors have been willing to pay more and more. Go back to the aftermath of the financial crisis and - through no fault of the company's - Dignity's share rating was down to 16 times earnings at the end of 2009. Since then, the rating has marched steadily upwards - again owing much more to the market's perceptions than the company's achievements - until it was 26 times 2014's earnings at the end of that year.
This year's surge in the death rate - and profits - means the prospective PE multiple may be down to about 22 times with the shares at 2,086p. Even so, it's difficult to justify such a rating with the cold numbers of asset valuation. On average in the past 10 years Dignity has generated about 53p of free cash. Even if all of that was distributed as an opening pay-out, it would take heroic assumptions about long-term growth rates to justify the current share price. Sure, great companies - and, in its way, Dignity may be one such - have a way of coming through, but not necessarily at any price. Investors have to remind themselves that eventually it comes down to the price they pay - of that, they can also be certain.
