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Croda International (LSE:CRDA) was one of the FTSE 100The most reliable dividend stocks for decades. And after crashing 75% from the top, it is starting to show signs of a comeback.
There is still a 3.8% dividend yield for those who buy the stock today. So with things looking up, are income-hunting investors grabbing this opportunity before it’s too late?
Honesty
Reliability is a major consideration for equity investors. Anyone who wants to live off the income generated by a stock portfolio needs to be sure that it will appear regularly.
There are no guarantees, but some companies have a better track record than others. And specialty chemicals company Croda International is up there with the UK’s best.
It has raised its dividend every year for the past 34 years. That’s a time that includes the global financial crisis, the Covid-19 pandemic, and much more besides.
What makes this even more impressive is that Croda is actually a revolving business. Demand for its products is decreasing as GDP growth increases and contracts and this affects profits.
Even so, however, the company has managed to continue to return more money to shareholders each year. And that is very important for income investors.
Stocks are low because high inventory levels have weighed on demand over the past few years. But the company has been making big moves and things are starting to look good.
Cycling
Through a series of acquisitions and divestments, Croda has tried to make itself less cyclical. A large part of this was selling off its industrial units to focus on life sciences and consumer care.
The health sciences department includes plant treatments that make seeds more resistant to drought and pests. And it’s important to note that agriculture can fluctuate as prices fluctuate.
Importantly, however, Croda’s seed pods are drop resistant. When things get tough, farmers rely heavily on them to protect their crops.
The biggest risk for the company at the moment is that the dividend has not been covered by profits for the past few years. That means it has been paying more than it was bringing in.
This cannot go on forever. But there is reason for optimism as management has been indicating recently that the extended period of high inventory will end in 2026.
That’s the news investors are waiting to hear. And if the growth in volumes comes with a corresponding increase in margins, things may start to look very high.
What you should look for
Croda’s next report is scheduled for February 24, which should include an update on the share. If the news is favorable – especially regarding the demand for returns – the recovery of the share price may continue.
I think this would be a good time to consider buying the stock. It trades at an unusually high dividend yield, has an outstanding track record, and signs of recovery appear to be on the way.
