Croda: a FTSE 100 Dividend-Raising Star

LONDON -- In an outcome that's tough on investors, the FTSE 100 (UKX) has failed to deliver a rising dividend payout over the last few years.

Just look at the iShares FTSE 100 ETF  (LSE: ISF.L  ) , for example. This is an exchange-traded fund that tracks the benchmark index, and we can see the aggregate payment from Britain's top 100 companies has yet to regain its pre-recession peak:

Year

2007

2008

2009

2010

2011

Dividend per share

19.1p

20.2p

17.1p

16.2p

18.1p

But some companies within London's premier index have performed well on dividends, despite these austere times, and this series aims to seek them out. One such name is Croda International  (LSE: CRDA.L  ) .

The big question is can the company's dividend continue to outperform its index. Let's take a closer look.

Croda manufactures specialty and industrial chemicals used in many everyday items and its products appear in things like cosmetic creams and lotions, dietary supplements, foods, plastic bags and vehicles. With the shares at 2303 pence, the market cap is £3216 million. This table summarizes the firm's recent financial record:

Year

2007

2008

2009

2010

2011

Revenue (£m)

805

911

828

1002

1068

Net cash from operations (£m)

(56)

57

155

132

164

Adjusted earnings per share

29.7p

48p

53.8p

95.4p

122.5p

Dividend per share

15.75p

19.75p

21.5p

35p

55p

So, the dividend has increased by 249% during the last five years -- equivalent to a 36.7% compound annual growth rate.

Croda employs about 3400 people to produce specialty chemicals for many industries in around 34 countries. The firm manufactures products in areas such as personal, health, crop, and home care, polymers, coatings, lubricants, processed vegetable oils, and industrial chemicals. Last year, around 43% of revenues came from Europe, 35% from the Americas, 17% from Asia, and 5% from the rest of the world.

You can see from Croda's trading record that business has been brisk and growing. That seems to be a trend set to continue as the company rolls out its forward strategy of "concentrating on high value, niche markets with innovative technologies, supplying to customers both large and small around the world." Indeed, although European trading has been bumpy recently, there's been good growth from Croda's other markets around the world. That makes the prospects for continued dividend progression look encouraging.

Croda's dividend growth score
I analyze four different features of a company to judge whether its dividend can continue to rise:

  1. Dividend cover: adjusted earnings covered the last dividend around 2.2 times. 4/5
  2. Net cash or debt: net gearing is around 64% with borrowings about 1.5 times earnings. 4/5
  3. Cash flow: cash flow supports earnings and both are trending up. 5/5
  4. Outlook and recent trading: reasonable recent trading; a cautiously positive outlook. 4/5

Overall, I score Croda 17 out of 20, which encourages me to believe the firm's dividend cannot continue to outpace dividends from the FTSE 100.

Foolish summary
There is a good record of cash generation, under control debt, and a positive outlook. Earnings comfortably cover the dividend, which looks good for continued growth.

Right now, the forecast full-year dividend is 61.24 pence per share, which supports a possible income of around 2.7%. That's a little rich for my taste, so Croda can stay on my watch list, for now.

Croda International is one of several dividend outperformers on the London stock exchange. There's one man who's as keen as I am to find, and invest, in them. I suggest you read all about his best investment ideas now in this free, time-limited report, while you have the chance: "8 Income Plays Held by Britain's Super Investor." This free report analyzes the £20 billion portfolio of legendary high-yield expert Neil Woodford. Click here to discover his favorite dividend opportunities with good growth potential.

Kevin Godbold does not own any shares mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
 


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