It’s now trading at a 72% discount to its 2021 highs. Yet the company keeps finding ways to return more cash to shareholders each year.

Speciality chemicals

Croda’s a chemicals company. Its products help crops grow and make beauty products and drugs do what they’re supposed to.

Importantly, barriers to entry are very high. The firm’s products are protected by regulations that make competing extremely difficult. In some cases, that takes the form of patents. Not all investors value these, but they do make it illegal for competitors to copy its products.

In others, they’re specified as part of the approval process. And that means customers aren’t allowed to change to an alternative product. That gives Croda a lot of pricing power. But despite all of this, the share price has been a disaster over the last five years or so.

Boom and bust

During the pandemic, demand for Croda’s products surged and both the stock and the underlying business did extremely well. Since then however, things have gone the other way. Part of this is customers working through excess inventories, but that’s not the only issue.

The firm also made some ill-judged strategic moves. It used its Covid-19 windfall to invest in its lipids division, but that’s been a mistake. As a result, the stock’s gone from an almighty boom to a huge bust. It’s fallen not only to its pre-pandemic levels, but well below this.

Despite all of this, the firm’s managed to keep increasing its dividend every year. Given the circumstances, that’s a remarkable achievement.

Dividends

Croda’s lifted its dividend for over 30 consecutive years. That covers recessions, wars, and several changes of leadership. The inherently cyclical nature of the business makes it even more impressive. But there are risks to consider. 

The latest increase was minimal to say the least. And the dividend was barely covered by the company’s free cash flows. That means investors need things to pick up for the business in the near future. But there are signs this is happening. 

Croda’s latest update reported signs of normalising inventory levels and that should mean demand’s set to improve after a long time.

Investing lessons

The best investors never stop learning. And Croda International has been a great source for lessons over the last few years. One is the danger of mistaking a cyclical high for a structural shift. This happened when demand soared during the pandemic.

Another’s the uncertainty that comes with complex industries. The firm’s strategy shift failed because it was wrong about the future of drug development. That’s not to say investors should avoid these entirely. But they should be clear about what the potential dangers are. 

Despite all this, the company’s been a consistent source of growing passive income. And that might also be extremely important.

Risks and rewards

Five years ago, £1,000 was enough to buy 15 shares in Croda International. Now investors get more than twice that many. There’s still risk and there’s still uncertainty, but I think the stock’s worth considering at today’s significantly discounted prices.

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In fact, if these forecasts are correct, then a £1,000 investment today could be worth up to £1,629 by this time next year – a 63% return in just 12 months!

A massive discount?

The value stock in question is Croda International (LSE:CRDA), with analysts at Barclays, UBS, JP Morgan, and Berenberg Bank all estimating the stock to be trading firmly below its intrinsic value.

The speciality chemicals group has had a rough ride of late, falling by over 70% since the start of 2022.

Why? Because Croda went from earning massive profits from specialised components needed for Pfizer’s and Moderna’s Covid-19 vaccines to suffering through a sustained industry-wide destocking cycle as the pandemic entered the rear-view mirror.

While the earnings collapse of £649m in 2022 to £62m in 2025 is real, the consensus among institutional analysts today is that investors have oversold.

Croda’s already seeing a resurgence in growth across its Consumer Care and Life Sciences segments, with crop protection, in particular, seeing a 14% jump in revenues last year.

At the same time, management’s targeting £100m in annualised savings by 2028, with £28m already delivered in 2025, paving the way for a small but noticeable bump in profit margins. But more encouragingly, thanks to a continued decline in capital expenditures, free cash flow also surged in the second half.

With more improvement projected throughout 2026, underlying operating margins are on track to expand to 18.4% this year from 17.4% in 2025, before climbing even higher to 19.5% in 2027.

Yet, despite this upward trajectory in the business, the stock price continues to fall into value stock territory.

What to watch

 Seeing shares tumble while operations improve is exactly what value investors hunt for. But Croda still has some challenges to overcome.

A big source of concern right now is supply chain disruption. Speciality chemicals typically have very complex supply chains, where production, processing and selling often happen on different continents. As such, Croda’s significantly exposed to trade disruptions like US tariffs.

Something else to keep an eye on is the group’s Consumer Care segment. Competition, particularly from China and India, has picked up drastically in recent years, undercutting Croda’s products and harming its margin recovery progress.

What’s the verdict?

When taking a step back, Croda shares look like a classic recovery play. Compared to the long-term earnings power of this business, the shares are trading at an unusually cheap valuation. But that’s only true if the business can continue rebuilding its profit margins and outmanoeuvre its rivals – something that isn’t guaranteed.

Nevertheless, at today’s valuation, the risk-to-reward ratio does look quite enticing. That’s why I think this value stock deserves a deeper dive. And it’s not the only potential buying opportunity on my radar this week.

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I think it depends. It’s always good to be aware when investor sentiment is pushing prices up, but there are still some opportunities that are well worth a closer look in today’s market.

Croda International

Shares in Croda International (LSE:CRDA) have rallied 27% from their 52-week lows. But investors who think the chance to buy the FTSE 100 stock has gone might be making a big mistake.

There’s still a 3.5% dividend yield available, which is much higher than the average for the last 10 years. So investors shouldn’t be too quick to think they’ve missed it.

The risk that jumps out at the moment is that the speciality chemicals company’s dividend hasn’t been covered by its free cash flow in recent years. That’s obviously not sustainable over the long term. 

Croda has maintained its impressive 30+ year record of dividend growth, but the increases have been minimal. But that might be set to change. 

The company is highly cyclical. But management thinks the firm is about to emerge from an investment-heavy phase into a much more cash-generative one.

If they’re right, then this could be the perfect time for investors to think about loading up on the stock. In my view, it’s well worth considering as a potential buy in March.

Kraft Heinz

Kraft Heinz (NASDAQ:KHC) has been something of an S&P 500 anomaly recently. Despite its sector being firmly in favour with investors, the stock has gone nowhere in 2026.

The business has been facing some challenges recently. The recent emphasis on healthy eating in the US is a major one, as well as the rise of GLP-1 drugs.

On top of this, the company has abandoned plans to split itself into two parts. But with all of this going on, it’s easy to forget that Kraft Heinz has some key strengths.

Its size gives it a big advantage when it comes to negotiating with suppliers. And I don’t think that’s likely to change any time soon. 

It also has the number one or number two products in 80% of the categories it competes in. That’s something that shouldn’t be underestimated.

The dividend yield is 6.5% and this is comfortably covered by free cash flows. The stock isn’t winning any popularity contests right now, but that’s not what investing is about.

Something for everyone

Croda International has managed to keep growing its dividend through a challenging period for the firm. And the stock is now starting to show some early signs of a recovery.

Kraft Heinz’s challenges are looking more resilient. But the company’s cash flows more than cover an attractive dividend yield and its key strengths also look to be intact. It’s still worth further research, I feel.

I think that means income investors of all types can find something in the stock market. Dividend shares are back in fashion, but there are still opportunities that are worth a look.

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That leaves me searching for the next recovery candidate. It’s easy to forget Rolls-Royce was once on its knees before roaring back. There are other blue-chips still nursing bruises. One that stands out is Croda International (LSE: CRDA), a speciality chemicals group whose share price is roughly 50% lower than five years ago.

Finally climbing

Croda got caught out by Covid. Sales surged as customers stockpiled key chemicals, then plunged while they worked through surplus inventories.

The latest annual results, released on 24 February, suggest that process is now over. Sales for the year to December rose 6.6% to £1.7bn on a constant-currency basis, while adjusted EBITDA earnings increased 7.1% to £397m. Management warned trading conditions remain unsettled, with geopolitical strains, US tariffs and currency swings all hitting visibility.

The shares are still down 5% over one year, but jumped 11% in February. They enjoyed a lift earlier in the month after JPMorgan hiked its price target to 4,000p from 3,600p. With the shares at 3,127p, that implies a potential 28% gain. JPMorgan reckons earnings downgrades have largely run their course and recent investments could drive growth.

FTSE 100 recovery opportunity

Croda operates in niche markets spanning consumer care, life sciences and industrial ingredients, where technical expertise and long customer relationships can create pricing power. That can help protect margins when demand improves. The group has also been investing heavily in higher-value, sustainability-focused products.

Another attraction is its dividend record. Croda has increased its payout for more than three decades, including throughout recent troubles. In fact over the last five years, shareholder payouts have increased at an average rate of just over 4% annually The trailing yield has now climbed to 3.7%. That consistency suggests a resilient underlying business. By contrast, Rolls-Royce had scrapped dividends altogether before it’s recovery.

Toppy price-to-earnings ratio

Croda isn’t a bargain-basement buy. The price-to-earnings ratio is 21.7. That’s higher than I expected given recent struggles. Risks remain. A slower global economy could curb demand from key end markets such as beauty and pharmaceuticals. Raw material costs and currency movements may squeeze margins.

Recent capital spending and acquisitions must translate into stronger sales and cash generation. If that fails to materialise, investors could drift away again.

On balance, Croda looks like a credible recovery play for investors prepared to take a long-term view. It almost certainly won’t repeat the fireworks seen at Rolls-Royce. But I think it’s worth considering with a long-term view. I can see three other FTSE 100 stocks that have fallen by half over the last five years: Entain, JD Sports Fashion and easyJet. I’m checking them out too. I can see plenty of recovery potential beyond Rolls-Royce.

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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.

The post Is 1 of the FTSE 100’s most reliable dividend stocks at the start of a comeback? appeared first on The Motley Fool UK.

Shares in the engineering giant have rocketed 1,208% in five years. That would have turned £10,000 into a staggering £130,800. Are there similar recovery opportunities out there today?

Despite a strong 2025, the FTSE 100 is packed with value stocks. The key is to get in before they take off, rather than afterwards. So do these two fit the bill?

Bunzl is starting to recover

I personally bought distribution and services group Bunzl (LSE: BNZL) last summer after the shares plunged due to slowing earnings in the US. It looked like a rare opportunity to back this solid company at a reduced price.

Before the sell-off, Bunzl had grown steadily for years, driven by an aggressive acquisition strategy. It also has a fabulous dividend track record, hiking shareholder payouts every year for more than three decades. Yet the shares are now down 37% over 12 months, reducing the price-to-earnings (P/E) ratio to a modest 11.1.

The shares are trading near a 10-year low but showing signs of stabilising, in fact, they’re up 5% in the last week. I’m hoping this is the start of the recovery. We’ll see.

Bunzl expects full-year revenues to grow up to 3% at constant exchange rates, but be broadly flat at actual ones. What it really needs is a brighter US economy, and maybe a stronger dollar, as that boosts revenues in sterling terms.

The trailing yield has climbed to 3.44%, with a chance of share price growth on top. I think it’s worth considering for this year’s Stocks and Shares ISA, but with a long-term view.

Croda shares are climbing too

I’ve been watching Croda International (LSE: CRDA) like a hawk. It makes speciality chemicals used in beauty, agriculture, and life sciences, and sales flew during the pandemic as customers stockpiled materials. As the panic eased, sales slumped. Customers had what they needed in stock. The Croda share price followed.

My view is this. At some point, customers had to work through their pandemic piles, and when they did, Croda would be in clover. The shares are still down 55% over five years, and 7.3% over 12 months. But like Bunzl, Croda jumped around 5% last week.

Croda also has a brilliant dividend track record, hiking shareholder payouts for each of the last 30 years. Thanks to the falling share price, the trailing yield has crept up to 3.8%.

The key to buying a recovery stock is to get in before they take off, as the first upwards bump is often the biggest. The shares are trading around a 10-year low. Croda is slightly more expensive than Bunzl on a P/E of just over 20. It also needs a more vibrant global economy and its absence remains a risk. But I can sense something stirring here and think it’s finally worth considering.

I don’t expect either to do a Rolls-Royce. I see them more as slow burners. Delivering dividends and growth over time, and building long-term wealth through compounding. It may help that both are now starting from a much lower base.

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That’s something I do myself. Investment performance can be cyclical, and it’s a great feeling when an undervalued stock suddenly takes off. Can these three long-term losers start to show their comeback potential?

Barratt Redrow needs underpinning

These are tough times for housebuilders, and last year was no exception, with the Barratt Redrow (LSE: BTRW) share price falling 11%. It’s down 45% over five years. A full decade ago the shares traded around 600p. Today, they stand at 375p.

Brexit, high inflation and mortgage rates, and the end of the Help-to-Buy scheme have all hit demand for new homes, while rising labour and materials costs squeezed margins. The cladding fire safety scandal didn’t help.

There are brighter signs emerging, as housing demand picks up after Budget uncertainty and interest rates slide. Barratt Redrow looks decent value on a price-to-earnings ratio (P/E) of 14.8, while the trailing yield has crept up to 4.7%. This could be a once-in-a-decade chance to buy at a low price, before the outlook improves. No guarantees though, as the UK economy remains fragile and affordability is still an issue.

Croda is getting cheaper

Croda International (LSE: CRDA) is another long-term struggler that intrigues me. It makes speciality chemicals used in beauty, agriculture, and life sciences, and demand surged during the pandemic as customers stockpiled vital materials.

The shares spiked to around 10,000p in 2020, then plunged as orders slumped. At today’s 2,650p, they’re lower than they were a decade ago. Today might mark a potential turning point, as customers have mostly worked through their pandemic inventories, and sales start to recover.

Croda’s dividend yield has climbed to 4.2%, and the shares look better value than they have done for ages, on a P/E of 18.9. But Croda still has work to do on sales and margins, and I don’t think it’s quite there yet.

Mondi continues to struggle

Paper and packaging specialist Mondi (LSE: MNDI) is another FTSE 100 stock trading below its level a decade ago. After booming during the initial e-commerce boom and again during the pandemic, when we were glued to our screens at home, its shares slumped as the cost-of-living crisis hit demand. They’re down 25% over the last year and 50% over five.

I suspect we may have to wait a while longer for the recovery, as consumers continue to feel the squeeze, hitting demand, while key markets are oversupplied and the price of paper falls. However, the forward yield of 5.1% should offer some consolation, while the shares look good value. With a P/E of 12.4, Mondi is cheapest of the three.

All three are worth considering, but Croda and Mondi may need another year or two before they show their mettle, while falling interest rates could make Barratt Redrow the more immediate turnaround play. The next decade should be better than the last for this underperforming trio, but investors may need to be patient.

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Here are two on my watchlist to monitor in the coming weeks as things pan out.

Utility costs abroad

I’m referring to the announcement on Saturday (17 January) by President Trump to impose new import tariffs on several key European allies, including the UK. This comes in response to opposition to US efforts to gain control of Greenland. Trump said that starting next month, a 10% tariff would be applied to all goods these countries export to the US. That rate will rise to 25% in June if no agreement’s reached.

One company this could be bad news for is National Grid (LSE:NG), a stock up 27% in the past year. Some think of the business as operating only in the UK, but in reality it has exposure in the US. While most of its US business revenues come from gas and electricity networks in states like New York, its infrastructure deployment and operating costs can be influenced by the cost of imported goods. This means components and materials are often sourced from the UK or routed through global supply chain. As a result, it will make them exposed to US tariffs.

For example, any specialised grid equipment that’s manufactured in the UK before installation in the US will now become more expensive. One implication is that higher import costs could squeeze profit margins. This could force National Grid to absorb costs and become less profitable.

A history of tariff impacts

Croda International (LSE:CRDA) is another stock in focus. The chemical supplier trades worldwide, including in America. In the latest published full-year accounts, it made up 24% of total sales. While a large portion of its business is generated inside the US through local manufacturing (estimated to be around 70%), it still exports some products from the UK and Europe into the US market.

The proposed 10% tariff on imports makes those exported goods more expensive for US buyers, which can reduce demand. Consumers might simply switch to other domestic alternatives.

Indeed, in prior tariff rounds, Croda said it would apply a tariff surcharge on certain products to cover incremental costs. It’ll be interesting if this happens again this time around, and how investors decide to react.

The stock’s down 14% over the past year, although I wouldn’t specifically attribute all of this to trade tensions. The company has been focusing heavily on cost-cutting and becoming a more efficient enterprise. The H1 results from last summer detailed £100m of annualised savings by the end of 2027.

To be clear, I’m not suggesting that investors should immediately sell any stock in either company. But I’m going to put both on my watchlist as companies that could see high volatility if tensions rise further. In line with my Foolish investing approach, if we see a sharp fall, it could signal a long-term buying opportunity.

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When it comes to trying to build passive income streams, dividend stocks are my number-one asset class. And in the best cases, there’s scope to reinvest for even higher returns in future.

Compound interest

If you can find a stock with a 7% dividend yield and reinvest the cash you get from the business to buy more shares, you’ll compound your returns at 7% each year. And that can be powerful.

It’s roughly enough to double the value of an investment (and the annual return it generates) every 10 years. So something that yields £1,000 a year returns £4,000 a year after 20 years.

There is, of course, an important catch to this. Reinvesting the cash you receive to buy more shares means you can’t use it for other things – like holidays or living expenses.

Investors often overlook this point, but it’s crucial to manage working returns properly. If the company doesn’t increase its dividend, generating growth involves giving up the current returns.

Growing businesses

This means the key question for investors looking for a growing dividend is whether a company can increase the amount it returns to shareholders. And that comes down to one thing. Over the long term, businesses can only return more cash to shareholders if they’re bringing more money in themselves. Specifically, if their net income is going up.

In the short term, there are things firms can do to keep paying (or even growing) dividends when earnings falter. But this can’t go on indefinitely – sooner or later the business has to catch up.

That means investors targeting a second income that grows without reinvesting today’s returns have to find firms that can make more money. And the UK has some interesting candidates.

An established success story

Croda International (LSE:CRDA) is a stock that arguably encapsulates all of this. The dividend yield is currently 4%, which is unusually high compared to the last 10 years.

It’s a specialty chemicals business and cyclical end markets bring a risk of demand falling. Despite this, the firm has increased its dividend per share annually for more than 30 years.

Things have been tricky lately though, and the company’s dividend isn’t currently covered by its earnings as a result. If this doesn’t change soon, that impressive record could be in danger.

Croda however, has been shifting its product lineup to focus on markets that are less cyclical. And if it can reduce the cyclical risk, there could be a lot to like from an investment perspective.

Income investing

The best businesses for income investors are ones that can increase their dividends each year. That means shareholders get more cash without having to use their returns to generate it.

Croda International has an outstanding record in this regard. But the business has been under pressure recently with unusually weak demand in certain markets. 

The time to look at buying this type of stock though, is when things look tough. So I think income investors should pay close attention when the company issues its next update in February.

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That’s certainly the view of JP Morgan, which sees the UK’s blue-chip index rising by as much as 10% over the year ahead. When it made that call, the FTSE 100 stood at 9,897. A 10% gain from there would lift it to 10,887, pretty close to 11,000.

Predictions are fun, but should be taken lightly. Anything can happen. Still, that shouldn’t stop people buying shares. Short-term volatility is the price investors pay for the superior long-term returns from equities.

It’s the long run that matters, and here are three FTSE 100 shares that have struggled recently but look interesting as a result.

Barratt Redrow shares to rebound?

The first is Barratt Redrow (LSE: BTRW). Like the rest of the housebuilding sector, it’s had a torrid time as high inflation, elevated mortgage rates and rising materials and labour costs squeeze margins from all sides.

The shares are down 14% over the last year and 43% over five. That’s brutal, but typical for housebuilders right now. Today, Barratt Redrow trades on a price-to-earnings ratio of 14.8 and offers a tempting dividend yield of 4.77%.

Interest rates are falling, with talk of sub-3% mortgages returning, which could revive demand. 2026 may still prove bumpy, as recession risks linger, but I think it has serious comeback potential over the next few years.

Marks & Spencer stock volatility

I sadly missed the great Marks & Spencer Group (LSE: MKS) share price recovery that saw it rocket back into the FTSE 100. Since then, it’s been volatile, with the shares down almost 15% over the last year.

The real blow was the cyberattack in April, which slashed first-half profits by 55% at a cost of £136m, although the company has since lodged a £100m insurance claim. Like other retailers, it’s also grappling with higher employer’s National Insurance and minimum wage hikes.

Its P/E has now slipped to a modest 10.4, although the dividend yield remains modest at 1.1%. Plans to open 500 new food stores over the coming years should drive growth, especially if the economy improves. And its clothing arm is improving but still needs a bit of a lift. Worth considering, but not without risk.

Croda still waiting to recover

Finally, Croda International (LSE: CRDA). It’s had another sticky year, with the shares down 16%, and a painful 55% over five years.

Croda makes speciality chemicals used in beauty, agriculture and life sciences. Demand surged during the pandemic as customers stockpiled, then slumped as inventories were run down. That process is still under way, but there are signs that sales volumes are now recovering.

It’s the priciest of the three, on a P/E of 19.6, although the dividend yield has climbed to almost 4%. The underlying business remains solid and feels due a revival. Will it come in 2026? We’ll see.

I think all three are worth considering although Barratt Redrow is my favourite here. There’s plenty more value lurking in the FTSE 100, and investors should do their research and dig it out.

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