Dividend shares can be a great source of passive income. And there’s a Dividend Aristocrat I think is historically cheap at the moment.

Over the last 10 years, the Croda International (LSE:CRDA) share price is up 96%. But from a value perspective, I think the stock’s cheaper than it was a decade ago so is worth considering.

Price vs value

As billionaire investor Warren Buffett says, price is what you pay and value’s what you get. And while Croda shares are more expensive than they were in 2014, investors get a lot more for their money.

Seeing this though, can be hard work – the stock trades at a price-to-earnings (P/E) multiple of 37. That’s high, both relative to the company’s history and the wider FTSE 100 index.

Croda International P/E ratio 2014-24

Created at TradingView

The trouble is, Croda’s a chemicals company that sells into highly cyclical end markets. As a result, its earnings can be volatile as demand fluctuates. 

That can make the stock look cheap due to its earnings being unusually high. This was the case at the start of 2022, when Croda shares traded at a P/E multiple of around 12. 

Croda International P/E vs. EPS 2014-24

Created at TradingView

In terms of value, the stock wasn’t actually that cheap back then. It just looked it because profits were being boosted by exceptional demand from Covid-19 vaccine manufacturers. 

Book value

The P/E ratio’s often a bad guide when it comes to valuing shares in businesses with highly cyclical earnings. It can make a stock look cheap when it’s actually expensive, or vice-versa. 

In these cases, the price-to-book (P/B) ratio can be a better guide. Even when earnings are volatile, a company’s equity – the difference between its assets and its liabilities – is more stable.

I think this gives a much better impression of Croda shares from a value perspective. Back in 2022 – when the stock was expensive – it was trading at a P/B multiple of almost 9.

Croda International P/B ratio 2014-24

Created at TradingView

Right now, things are different. The stock trades at a P/B multiple of 2.6, which is as low as it has been at any time in the last 10 years – and is why I think it’s unusually cheap. 

That’s not to say investing in Croda is without risk. As shareholders have been seeing, demand for speciality chemicals can fall suddenly and there isn’t much the company can do about it. 

When that happens, earnings can fall 73% – as they did in 2023 – or even more. But this is why I think investors would be wise to look past earnings multiples for valuation purposes. 

Dividend investing

With a 2.5% dividend yield, Croda International isn’t an obvious choice for passive income investors. But there’s a lot to like about the stock.

Fundamentally, I think the business is extremely strong. A combination of patents and regulatory requirements make it extremely difficult to disrupt.

On top of this, it’s trading at what I believe is its lowest valuation in 10 years. That’s a powerful combination for investors, regardless of style.