Is HON’s Falling Dividend Yield a Concern to Long-Term Investors?
Honeywell’s dividend yield
A dividend yield is a measure of a company’s annual dividend per share relative to its price per share. It indicates how much cash an investor is getting for every dollar invested in a company’s equity. A high dividend yield is a good sign, as it provides investors with a stable income.
On May 18, 2017, Honeywell International’s (HON) stock price closed at $130.42. Given its current dividend rate, Honeywell’s dividend yield stands at 2.0%. Honeywell’s peers General Electric (GE) and United Technologies (UTX) have dividend yields of 3.5% and 2.2%, respectively, while Textron (TXT) hasn’t declared any dividends in 2017.
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Honeywell’s dividend yield has shown a falling trend since 2012. It’s remained in the range of 1.9%–2.7%. The falling trend in Honeywell’s dividend yield is primarily the result of its higher stock price growth compared to its dividend growth. However, HON’s dividend yield is still better than the yield on the 1-Year Treasury bill. HON considers itself a stable dividend yielding company.
A dividend payout ratio is calculated by dividing a company’s annual dividend per share by its annual earnings per share (or EPS). The ratio tells investors what percentage of a company’s earnings it’s paying out in dividends.
Honeywell’s payout has been on a falling trend since 2011, with the exception of 2016. Honeywell had a dividend payout ratio of 52.4% in 2011, and it fell to 35.6% in 2015. However, Honeywell’s dividend payout ratio improved to 39.5% in 2016. In 1Q17, HON’s dividend payout stood at 38.9%.
You can indirectly hold Honeywell by investing in the iShares U.S. Industrials ETF (IYJ), which has invested 3.3% of its holdings in Honeywell as of May 18, 2017.
In the next article, we’ll look into analysts’ latest ratings for Honeywell.