Forget buy to let! I think this FTSE 100 stock should help investors get richer

Andy Ross thinks this FTSE 100 (INDEXFTSE: UKX) share has huge growth potential and here’s why.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Chemicals group Croda (LSE: CRDA) is one of those easy to ignore stocks where the share price just seems to consistently grow over time. In that way, it favours the patient investment approach of someone like successful British investor Nick Train.

Why do the shares do well

In the stock market many people try to chase the next big thing. Investing in companies that promise the world and deliver very little. However I think that buying quality companies at a decent price – an approach which happens to be favoured by Warren Buffett and Train – has a much better chance of being financially rewarding. Croda’s shares, in my opinion, do well because they are not flashy. Investors value and reward the consistency of the group’s earnings and profitability.

Admittedly, like so much else about the company, the dividend doesn’t set pulses racing, as it’s only a little over 1%, but what it does do is offer sustainable growth. Year-on-year the dividend increases, at a time when some other FTSE 100 companies are having to slash their payouts to investors. This deserves a premium because it reflects a company where management makes the right decisions, plans for the long term and the shares provide reliable returns. In 2016, the final dividend was 38p, in 2018 that had increased to 46p, a rise of 21%. 

Beyond the dividend, the company shows consistent if unspectacular growth. Operating profit for the year ended 31 December 2018 increased by 3.1%. During the year, earnings per share rose by 6.3% so this shows there is a solid ability to grow.

Acquiring growth

Croda has a history of smaller bolt-on acquisitions which should help it to keep growing and gain market share. In December 2018, it wrapped up a deal to buy Denmark-based vaccine adjuvant specialist Brenntag Biosector for €72m. Its product is used to increase the effectiveness of vaccines.

Prior to that, it had made deals for Nautilus Biosciences Canada Inc, a technology-rich marine biotechnology company based on Prince Edward Island, and Cutitronics, which has developed a novel digital solution to meet the demands of personal care consumers. These deals all add value to the company, extending its expertise and scientific development so that it can stay ahead of the pack and remain innovative. 

The value of boring

Croda benefits from global scale, operating in 38 countries and having four distinctive markets for its products: life sciences, personal care, performance technologies and industrial chemicals. Therefore, it’s not reliant on any one country or customer for its profits and claims to have 17,000 customers, showing just how in-demand its products are.

Between 2007 and 2018 profit before tax rose 403%, while earnings per share rose by 476%. This financial performance underpins the solid growth in the share price, which has seen it outperform the FTSE 100. 

With all this in mind, despite the high P/E and low yield, which would usually put me off, I think this steady company has a lot of qualities that mean the share price is likely to keep ticking higher. Hopefully further smart acquisitions can add just a bit more of a boost to the company’s growth.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »