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Insights into Honeywell's Outperformance and 2Q17 Dividend

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Part 2
Insights into Honeywell's Outperformance and 2Q17 Dividend PART 2 OF 4

Honeywell’s 2Q17 Dividend Is Drawing Near

Honeywell declares dividend for 2Q17

On April 24, 2017, Honeywell International (HON) announced a dividend of 0.67 per share for 2Q17 on its outstanding common stock. 

The dividend will be payable to shareholders on June 9, 2017. Honeywell has set May 19, 2017, as the record date. Historically, Honeywell has increased its dividend in the last quarter of every year.

Honeywell&#8217;s 2Q17 Dividend Is Drawing Near

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Dividend growth

Honeywell’s 2Q17 dividend of $0.67 represents a rise of 11.8% over its 2Q16 dividend. Excluding a special dividend of $0.66 that it announced in 4Q16, Honeywell’s dividend has grown at a CAGR (compound annual growth rate) of 12.3%, from $1.37 per share in 2011 to $2.45 per share in 2016. 

HON’s other industrial peers General Electric (GE) and United Technologies (UTX) have grown their dividends at CAGRs of 9.5% and 7.0%, respectively, during the same period. Textron (TXT) hasn’t increased its regular quarterly dividend since 2009.

Checking up on HON’s free cash flow

It’s important for investors to know whether a company is generating enough free cash flow to sustain its dividend growth, as its dividends are usually paid out of its free cash flow. For our analysis, we’ll consider the free cash flow generated by Honeywell and convert it into free cash flow per share.

In 2011, HON’s free cash flow per share was $4.78, and it rose to $5.68 in 2016, representing a CAGR of 3.5%. At the end of 1Q17. HON’s free cash flow per share was ~$1.21. Assuming that HON continues to maintain this free cash flow, its free cash flow per share for 2017 will be $4.85, lower than it was in 2016.

Since Honeywell’s dividend growth rate is higher than its free cash flow growth, it’ll be difficult for HON to sustain this kind of high dividend growth in the long run unless its free cash flow increases substantially.

Notably, investors can indirectly hold Honeywell by investing in the Vanguard Industrials ETF (VIS), which has invested 3.5% of its holdings in Honeywell as of May 18, 2017.

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