Every business goes through ups and downs, but not many can increase their dividend every year since 1991. But that’s the case with one FTSE 100 stock that’s trading at a 52-week low.
Croda International (LSE:CRDA) is a chemicals company that’s been going through tough times of late. But this is a firm that has seen it all before.
Cyclical lows
Croda’s increased its dividend per share every year since 1991, which is almost as long as I’ve been alive. And a lot has happened in that time. The last 34 years have included the dot-com crash in 2000, the 2008-2009 Great Financial Crisis, and – of course – Covid-19. But none of these have stalled the FTSE 100 firm’s dividend growth.
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What makes this even more impressive, in my view, is the underlying business is quite cyclical. Demand for its products can fluctuate substantially in different economic environments.
With this type of business, the stock market can be prone to overreactions. So the key is to find a way to buy it when it’s cheap and avoid it when it’s expensive.
By most metrics, the stock looks like it’s unusually good value at the moment. It’s at a 52-week low and the dividend yield’s the highest it’s been in a decade. As a result, I think investors should consider adding the stock to their watchlists. At the very least, I think it’s worth a closer look.
Cyclical valuation
Croda International makes chemicals for the cosmetics, agriculture, and life sciences industries. So demand can wax and wane depending on how these end markets are faring.
The company’s ability to influence this is obviously limited. And that makes the cyclical nature of its end markets a risk for investors, which has been manifesting itself recently. Over the last couple of years, Croda’s been battling elevated inventory levels, especially in the agriculture sector. As a result, sales and profits have been falling.
The stock currently trades at a price-to-earnings (P/E) ratio of around 27. That looks high – and it is – but if earnings per share get back to their 2017 levels, that will fall to around 17.
Croda’s patents and the fact its products are often specified by regulation mean I expect this to happen sooner or later. And while investors wait, there’s a dividend with a 3.75% yield.
Importantly, the dividend is well-covered by the company’s earnings. And I think that means there’s a good chance of the long track record of rising distributions continuing this year.
Long-term investing
In the short term, there are macroeconomic indicators investors look at to try and work out when demand will pick up. But with a stock like Croda International, I’m not sure it’s worth it.
I think the better move for investors is to take the long-term view. This is a business that has seen it all before and kept moving forward throughout. On top of this, the company has durable competitive strengths and operates in an industry where demand is at a cyclical low. At a 52-week low, I think it’s worth considering.
