What I look for in a stock investment is a business with a strong competitive position and the ability to generate free cash. And the FTSE 100 has a number of outstanding dividend shares that fit the bill.
Two that stand out to me are Admiral (LSE:ADM) and Croda International (LSE:CRDA). Both are terrific businesses, but should they be on my list of stocks to buy in June?
Admiral
Admiral is – in my view – the top class player in the field when it comes to UK insurance. Over the last 10 years, it has consistently achieved better underwriting margins than the wider industry.
That’s not an accident – the FTSE 100 firm’s telematics products give it an edge when it comes to gathering and processing driver data. And this allows it to make better assessments of risk.
From a dividend perspective, the company’s also very attractive. It has a policy of distributing excess cash that isn’t required to meet regulatory standards as well as 65% of its post-tax profits.
A leading position in a growing industry’s a very attractive combination. But with the stock up 25% since the start of the year, I’m hesitant about buying it right now.
Inflation’s on the rise again in the UK and this is one of the big risks with this type of company. Higher costs make repairing cars more expensive and this can cut into margins across the industry.
The dividend yield‘s currently 4.3%, which isn’t bad. But I’m looking for a better opportunity and hoping the market presents me with one in June.
Croda International
Croda International’s a stock I’ve had an eye on for some time. The share price is currently £30.37 and since I’m looking to buy it anywhere below £30, I’m watching very carefully at the moment.
The company’s chemicals go into crop protection products, consumer cosmetics, and pharmaceutical drugs. They’re generally protected by patents and – in some cases – specified by regulation.
Ordinarily, that gives the firm a lot of pricing power. But the share price has been falling over the last couple of years as a result of excess inventories built up during the Covid-19 pandemic.
It’s also worth noting that the pharmaceutical sector in the US has been under pressure recently. That’s another potential risk to pay attention to when it comes to Croda International shares.
Despite the recent challenges, the firm has consistently increased its dividend. In fact, it’s done this each year for over three decades, through several economic cycles and the associated ups and downs.
That’s why I think the FTSE 100 stock could be a great passive income investment – at the right price. But it’s not far from the level I’m looking to buy and I’m hoping to get my chance in June.
Buying opportunities
According to billionaire investor Warren Buffett, the stock market’s a device for transferring wealth from the impatient to the patient. And I’m mindful of this advice when I think about Admiral and Croda International.
I think both are terrific businesses and neither stock’s trading at a level I think is outrageously expensive. But I’m trying to remain patient while I wait for potential opportunities in June.
