Honeywell (HON) raises dividend 12% & has paid dividends for 23 years.

hon

Honeywell’s (HON) dividend was increased by 12% with an overall yield above that of the S&P 500 Index at 2.42%. Honeywell is a leading industrial conglomerate firm with three separate business units; Automation, Aerospace, & Control Solutions. It ranks 75th in the Fortune 500 company list.  Honeywell has paid dividends consecutively for 23 years. It currently ranks 19th in yield within the large cap industrial dividend stocks.

 

Honeywell has maintained a three-year growth rate of dividends of over 13 percent. The company indicated in its conference call that they have doled out $2.4 billion of dividends alone in 2016 and moreover the firm is committed to enhancing the dividend faster than the rate of earnings growth each year.The quarterly dividend for the December payment will be $0.665 versus the prior year rate of $0.595 per share. HON does not qualify as a member of our Top 100 Dividend Stock List (see below).

The dividend will be paid at the new higher rate on December 9, 2016, to shareholders of record at close of business on November 18, 2016. Honeywell International Inc. is currently priced at $109.83. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
11/18/2016 0.665
8/17/2016 0.595
5/17/2016 0.595
2/23/2016 0.595
11/17/2015 0.595
8/18/2015 0.518
5/19/2015 0.518
2/24/2015 0.518
11/18/2014 0.518
8/19/2014 0.45
5/20/2014 0.45
2/25/2014 0.45
11/19/2013 0.45
8/16/2013 0.41
5/16/2013 0.41
2/21/2013 0.41
11/16/2012 0.41
8/16/2012 0.373
5/16/2012 0.373
2/23/2012 0.373
11/16/2011 0.373
8/17/2011 0.333
5/18/2011 0.333
2/16/2011 0.333
11/17/2010 0.303
8/18/2010 0.303
5/18/2010 0.303
2/17/2010 0.303

Analysis of Honeywell International Inc. is based upon our five key criteria, which include; 

Category Value Score
Dividend Yield 2.42% 228
Dividend Growth (3-6 year avg) 12.95%  166
Forward P/E 15.44  114
S&P Financial Rating A 120
Beta 1.05  150
Total Score    778

Additional Information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr max Yield % 5 yr lowest Yield %
2.42% 13.4% 12.5% 52.65 2.09 0.77 2.18 2.71% 1.78%

Final Analysis;   

Positives;

  • Honeywell’s dividend yield is above that of the S&P 500 Index
  • Honeywell maintains an impressive 3 year dividend growth rate of 13.4%.
  • Honeywell has paid out a dividend consecutively for the past 23 years.
  • Honeywell maintains a credit rating of A. This is investment grade

Negatives;

  • Honeywell is trading at a modest forward PE ratio, but on a price/sales (P/S) basis it is trading at elevated historical levels. From a relative valuation perspective based upon P/S, Honeywell is overvalued. Its yield is also below the historical max yield of 2.71%. Net margins are also at a peak level and nearly double historical levels.
  • Honeywell maintains a beta of 1.05, higher than the average company.

 

Summary;

Last week, the firm posted Q3 earnings of $1.67 per share, 3 cents above already reduced expectations. The reduction in earnings guidance earlier this month was primarily due to poor results in both the oil & gas and jet divisions.  The only portion of Honeywell’s business to perform well for Q3 was their home and building division (+5%).

During their October 21st conference call, management outlined expectations of $6.62 in earnings per share for the year. CEO Dave Cote indicated he expected Honeywell to return to double-digit EPS growth in the fourth quarter with a full-year EPS future growth target of between 8% and  9%. Mr. Cote also expects cost savings in the next twelve months of $175 million from the restructuring plan in place. Mr. Cote will be stepping down next year while COO Darius Adamczyk will succeed him.  Mr. Adamczyk will assume the new position next March while Mr. Cote will continue as executive chairman for an additional two years.

For the firm’s fourth quarter outlook, Honeywell is anticipating that sales will continue to decline (up to 20%) particularly in defense, space, and jets.  Despite the weaker performance results, the firm continues to increase dividends and actively repurchase shares of stock. Honeywell has already matched the total repurchases of stock in all of 2015.  The firm plans to repurchase nearly $2 billion in stock over the next twelve months.  Honeywell International also maintains a stellar return on equity of 26.84%. Net margins are also at a record high level, at 12.5%. This is double what net margins were in 2006.

Based upon its higher relative valuation (P/S), peak net margins, and above-average beta, Honeywell does not qualify as one of our Top 100 Dividend Stocks. Within the industrial sector, Honeywell’s ranking is 116.  Honeywell’s industrial industry competitors Mosiac (MOS), Cummins (CUM), Deere (DE), and Magna International (MGA) all rate higher (total score example) and are listed of my favorite Top 100 dividend companies.

Honeywell International Inc. Dividend Yield Chart (Click to enlarge) hon3

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

Further information on dividend investing and evaluating dividend growth candidates can be found at http://seekingalpha.com/author/timothy-mcintosh/articles

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