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Croda International (LSE:CRDA) has been one of the FTSE 100’s most reliable dividend stocks for decades. And after crashing 75% from its highs, it’s starting to show signs of a comeback.
There’s still a 3.8% dividend yield for those who buy the stock today. So with things starting to look up, should investors hunting for passive income seize the opportunity before it’s too late?
Reliability
Reliability is a big consideration for dividend investors. Anyone looking to live off the income generated by a stock portfolio needs to be confident that it’s going to appear on a regular basis.
There are never any guarantees, but some companies have better track records than others. And specialty chemicals company Croda International is right up there with the UK’s finest.
It has increased its dividend each year for the last 34 years. That’s a period that covers the global financial crisis, the Covid-19 pandemic, and a lot more besides.
What makes this even more impressive is that Croda is actually quite a cyclical business. Demand for its products waxes and wanes as GDP growth expands and contracts and this affects earnings.
Even in the downturns, though, the company has managed to keep returning more cash to shareholders each year. And that’s hugely valuable for income investors.
The stock is down because high inventory levels have been weighing on demand over the last few years. But the company has been making some big moves and things are just starting to look up.
Cyclicality
Through a series of acquisitions and divestitures, Croda has attempted to make itself less cyclical. A big part of this has been selling off its industrial units to focus on life sciences and consumer care.
The life sciences division includes crop treatments that make seeds more resilient to droughts and pests. And it’s worth noting that agriculture can be cyclical as crop prices fluctuate.
Importantly, though, Croda’s seed coatings are relatively resilient to downturns. When things are tough, farmers depend on them even more for protecting the crops they do have.
The big risk with the company at the moment is that the dividend hasn’t been covered by earnings for the last couple of years. That means it’s been paying out more than it’s been bringing in.
This can’t go on forever. But there’s reason for optimism as management has been signalling recently that the extended period of high inventories is set to come to an end in 2026.
That’s the news investors have been waiting to hear. And if growth in volumes comes with a corresponding increase in margins, things could start looking up very sharply.
What to look out for
Croda’s next report is scheduled for 24 February, which should include an update on the dividend. If the news is positive – especially in terms of recovering demand – a recovery in the share price could be on.
I think this could be a great time to consider buying the stock. It’s trading with an unusually large dividend yield, has an outstanding track record, and signs of recovery seem to be on the way.
