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Investors who want to cash in on Honeywell International Inc.’s (NYSE:HON) upcoming dividend of US$0.82 per share have only 2 days left to buy the shares before its ex-dividend date, 21 February 2019, in time for dividends payable on the 08 March 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Honeywell International’s latest financial data to analyse its dividend characteristics.
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How well does Honeywell International fit our criteria?
Honeywell International has a trailing twelve-month payout ratio of 34%, which means that the dividend is covered by earnings. Going forward, analysts expect HON’s payout to increase to 40% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.3%. However, EPS is forecasted to fall to $7.92 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. In the case of HON it has increased its DPS from $1.21 to $3.28 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, Honeywell International has a yield of 2.1%, which is high for Industrials stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, Honeywell International is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three essential aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for HON’s future growth? Take a look at our free research report of analyst consensus for HON’s outlook.
- Valuation: What is HON worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HON is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. On rare occasion, data errors may occur. Thank you for reading.