Last update on 2024-06-25

Honeywell (HON) - Dividend Analysis (Final Score: 7/8)

Honeywell (HON) achieves a dividend score of 7/8 analyzing performance & stability using an 8-criteria system for income-focused investors.

Short Analysis - Dividend Score: 7

We're running Honeywell (HON) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis uses eight criteria to evaluate Honeywell's (HON) dividend performance and stability: 1. **Dividend Yield vs. Industry Average**: Honeywell's 1.9885% yield is below the industry average of 2.55%, but its consistent dividend growth per share from $0.7169 in 2003 to $4.17 in 2023 is promising. 2. **Annual Growth Rate > 5%**: Honeywell's average growth rate over 20 years is inconsistent and doesn't always exceed 5%, affected by economic conditions and company policies. 3. **Payout Ratio < 65%**: With an average payout ratio of 44.69% over 20 years, Honeywell maintains a sustainable payout below the 65% threshold. 4. **Dividends Covered by Earnings**: Generally well-covered, with occasional anomalies like in 2017. E.g., in 2023, the ratio was 0.4886 indicating solid coverage. 5. **Dividends Covered by Cash Flow**: Shows an improving trend from below 0.50 (2003-2007) to around 0.66 in 2023, reflecting better cash flow management. 6. **Stable Dividends**: Over 20 years, the dividend per share has steadily increased without major dips, ensuring investor confidence in stable income. 7. **Dividends Paid > 25 Years**: Demonstrated reliability, paying rising dividends since at least 1998, indicating solid financial health. 8. **Reliable Stock Repurchases**: Honeywell has repurchased shares over 20 years, showing reliable reduction in share count and enhancing shareholder value.

Insights for Value Investors Seeking Stable Income

The thorough analysis of Honeywell's dividend performance across multiple criteria suggests it as a solid candidate for income-focused investors despite some gaps in yield and inconsistent growth rates. The company maintains sustainable dividend policies with a stable, long-term payout history, sustainable payout ratios, and a strong commitment to returning value via stock repurchases. With improving cash flow coverage and potential for future dividend increases, Honeywell shows promise for stability. Consequently, Honeywell (HON) is worth considering for investors seeking steady returns and long-term income.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

A dividend yield measures the ratio of a company's annual dividend compared to its current share price. It is crucial for income-focused investors as it indicates the level of income generated relative to the capital invested.

Honeywell's (HON) current dividend yield of 1.9885% is below the industry average of 2.55%. Analyzing the company's dividend yield over the past two decades reveals fluctuating patterns, with notable highs, such as 3.35% in 2008 and a lower end of 1.6241% in 2007. The current yield suggests a moderate level when backed by a relatively steady growth in dividend per share, which increased from $0.7169 in 2003 to $4.17 in 2023. Analysts might view this trend as suboptimal compared to the broader industry. Given that the stock price has significantly appreciated from $31.87 to $209.71 during the same period, the yield appears moderate relative to the strengthening stock price. Thus, the consistent growth in dividend per share might reassure investors despite the yield being below industry averages.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate represents the annualized percentage rate of growth of a company's dividend per share during a certain period. A rate exceeding 5% is generally a good indicator of a company's profitability and commitment to returning value to shareholders.

Over the last 20 years, Honeywell's Dividend per Share Ratio has experienced fluctuations: from 0 in earlier years 2003 and 2004, seeing peaks in 2005 with a near 9.57, 2007 around 10.13, 2011 with 13.20, to a low of 3.86 in 2021 but increasing again to 5.30 in 2022. Despite some gaps and variability on specific years, the general trend aligns closely with an average ratio of 8.84. A closer analysis would be required to compute a precise annualized growth rate, presently the average dividend growth does not consistently hit over 5%. Factors like profitability, economic conditions, and company policy fluctuations should be examined further. The trend generally seems positive but reveals several weaknesses and inconsistency in stability.

Average annual Payout Ratio lower than 65% in the last 20 years?

A company's payout ratio measures the percentage of earnings it pays out as dividends. A ratio below 65% is generally considered sustainable, indicating the company retains enough earnings for growth and to cushion against economic downturns.

Honeywell's average payout ratio over the last 20 years stands at approximately 44.69%. This figure is well below the threshold of 65%, indicating a conservative and sustainable approach to dividend payments. This trend suggests that Honeywell maintains a healthy balance between rewarding shareholders and reinvesting in its operations. The notable spike in 2017, with a payout ratio of 122.52%, appears to be an anomaly, potentially due to one-off factors such as special dividends or extraordinary items impacting earnings. Overall, Honeywell's payout ratio trend is positive, reflecting financial prudence and stability in its dividend policy.

Dividends Well Covered by Earnings?

Dividends should ideally be covered by the company's earnings to ensure the sustainability of dividend payments. This criterion evaluates the Dividend Payout Ratio, calculated by dividing the annual dividend per share by the earnings per share. A lower ratio generally indicates that the company has sufficient earnings to cover its dividend payments.

Analyzing Honeywell (HON) from 2003 to 2023, the Dividend Payout Ratio varies. Lower ratios in the early years such as 0.4655 (2003) and 0.3435 (2006) indicate good coverage. However, exceptions like 1.2252 in 2017 show dividends were higher than earnings, posing risk. Mostly, consistent lower ratios (around 0.300 to 0.500) signify that Honeywell manages its dividends well against its earnings, marking a good trend for sustainability, except for anomalies. For instance, in 2023, the ratio is about 0.4886, still within a conservative range, underscoring a positive trend overall.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow refers to the ratio of the company's free cash flow to its dividend payouts. This metric evaluates the financial capability of a company to support its dividend payouts through its free cash flow, without resorting to financing or other sources of funds. It's essential to empowering potential investors with the relative confidence and sustainability of the dividend payments, making it a critical criterion for dividend-centric investment strategies.

Looking at Honeywell's trend from 2003 to 2023, the Dividend Coverage Ratio by Cash Flow has fluctuated but generally shows an upward trend. In 2003, the ratio was about 0.42, indicating that free cash flow was covering less than half of the dividends. This ratio slightly decreased in the following years, hitting its lowest of approximately 0.24 in 2007. This was a concerning figure because it shows that the company had less cash flow available to cover dividends.However, post-2007, the trend improved, with some volatility, reaching as high as approximately 0.66 in 2023. This upward trend is positive because it indicates increasing coverage of dividends by free cash flow, suggesting Honeywell's strengthening financial stability. Notably, during 2020-2023, the coverage ratio was above 0.40, peaking at around 0.66, which is the highest in the period analyzed. This is favorable because higher ratios imply a lower risk of the company cutting its dividend payments in the future. Honeywell's improved ratio over time indicates robust management of cash flows and a likely stronger commitment to maintaining and potentially increasing its dividend payouts. Investors seeking stable and growing dividends might find Honeywell to be a favorable candidate based on these trends.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividends over a long period reassures investors of predictable income. A consistent increase or maintained level in dividends also reflects financially healthy and well-managed companies.

Analyzing the data over the past 20 years for Honeywell (HON), we can observe that the dividend per share has steadily increased from $0.7169 in 2003 to $4.17 in 2023. That signifies almost a sixfold increase over the last two decades. This trend confirms the company’s commitment to returning value to its shareholders. Notably, there are no major dips or a drop exceeding 20%, which means Honeywell provides a stable and reliable source of income for dividend-focused investors. This trend is indeed positive, reflecting robust financial health and consistent profitability in the long term.

Dividends Paid for Over 25 Years?

This criterion examines whether the company has reliably paid dividends for at least 25 years, an indicator of financial stability and shareholder value.

Honeywell (HON) has demonstrated a consistent and increasing dividend payout for over 25 years, as evidenced by the rising dividend per share values from 1998 through 2023. Starting from $0.572 per share in 1998, the dividend climbed steadily to $4.17 per share by 2023. This upward trend indicates strong financial health and a commitment to returning value to shareholders. Such consistency is highly favorable and suggests long-term sustainability, making it a good sign for potential investors who prioritize reliable dividend income.

Reliable Stock Repurchases Over the Past 20 Years?

Stock repurchases refer to the process where a company buys back its own shares from the marketplace. This criterion assesses whether Honeywell consistently bought back shares over two decades and gauges the reliability of this activity.

Over the past 20 years, Honeywell (HON) has exhibited a reliable stock repurchase program, as evidenced by significant share buybacks in multiple years, including key periods like 2006-2008 and 2014-2023. The number of shares declined from 859,740,260 in 2003 to 663,000,000 in 2023. This indicates a consistent repurchase trend except for certain outlier years where share count increased or remained stable. The average repurchased share count change of -1.2665% further underscores a reliable reduction in outstanding shares, enhancing shareholder value through higher Earnings Per Share (EPS) and indicating prudent capital allocation strategies.