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Investing in the stock market can be a great way to earn income. And whether it’s a lump sum or a regular investment, the returns can be amazing.
Dividends are never guaranteed and even the best investors need luck every now and then. But I firmly believe that stocks in large companies are the best source of additional income.
Warren Buffett
Here is an example of this in action. In 1994, Berkshire Hathaway CEO Warren Buffett has invested $1.3bn American Express shares.
During that time, the stock had a dividend yield of just over 3%. That doesn’t particularly stand out as an income opportunity, but the story since then has been steadily growing.
Since 1994, American Express has grown its dividend by an average of 7% per year. That’s not exactly explosive, but over 31 years, it’s enough to turn a 3% return into a 27% return.
Three factors have been key to Buffett’s investment success. The first was to find a company with a strong competitive position that would allow it to continue to grow for 30 years.
The second one was to buy it at the right price. The CEO of Berkshire Hathaway took advantage of the conflict with American Express to buy shares when the price was low.
The third was holding on – the stock has risen the most since 1994, but Buffett has resisted the temptation to sell. The result is an ever-increasing passive income stream.
Finding stocks to buy
FTSE 100 a chemical company Croda International (LSE:CRDA) has a strong competitive position, a history of increasing profitability, and trades at an unusually low price.
The company’s Q3 results show that business is starting to recover from the prolonged downturn following the Covid-19 pandemic. Total revenue was 5% higher than in 2023.
Croda’s consumer care business, which accounts for 56% of total sales, reported stable demand and strong growth of 5%. But there was a strong performance from elsewhere.
Revenue from the Industrial Specialties division increased 14%, mostly driven by higher prices. Although this is a small part of the overall business, the result is very encouraging.
The nomination of Robert Kennedy Jr. as the US Secretary of Health is probably bad news for Croda’s lipids business. This gives the vaccine manufacturers chemicals.
Despite this, I expect the company to continue its strong track record of dividend increases. These have reached 4.5% per annum and the current yield is over 3%.
Opportunity to buy?
Unsurprisingly, Croda’s stock has fallen sharply since the end of the pandemic. As it continues to fall, I keep a close eye on it.
A combination of a strong competitive position, cheap valuation, and a long-term perspective is what I use to aim for long-term income. And Croda is getting closer to my target prices.
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