Honeywell’s 3Q17 dividend
On September 8, 2017, Honeywell (HON) will pay the third dividend to its shareholders for fiscal 2017. Investors who held Honeywell stock on or before August 18, 2017, will be eligible for the dividend. Honeywell announced a dividend of $0.67 per share.
The declared dividend of $0.67 represents dividend growth of 11.80% on a year-over-year basis. Honeywell increased its dividend in 4Q16. Since then, the dividend rate has remained constant. Assuming that there isn’t a change in the dividend rate for the rest of the year, Honeywell is expected to pay a dividend of $2.66 for fiscal 2017. In the past, Honeywell has increased the dividend in the final quarter every year. Since 2012, Honeywell’s dividend growth has grown at a CAGR (compound annual growth rate) of 14.20%.
Free cash flow
For any company, a positive free cash flow is very important. The free cash flow helps finance activities like debt repayments, share buybacks, and dividend payments. At the end of 2Q17, Honeywell’s free cash flow was reported at $1.21 billion—a fall of 7% compared to the previous year. However, Honeywell expects its fiscal 2017 free cash flow to be $4.6 billion–$4.7 billion. To see if Honeywell’s free cash flow can support its dividend growth, we’ll convert its free cash flow into free cash flow per share. In 2012, Honeywell’s free cash flow per share was $4.63. By the end of fiscal 2017, it’s expected to be ~$5.94, which represents a CAGR of 5.10%.
Honeywell’s dividend growth rate is higher than the free cash flow per share growth rate. A significant portion of its free cash flow is spent on paying dividends, which leaves fewer finances for other financial activities.
Investors looking to hold Honeywell indirectly can invest in the PowerShares Aerospace & Defense Portfolio (PPA), which has invested 6.50% of its holdings in Honeywell. PPA has also invested in Boeing (BA), Lockheed Martin (LMT), and General Dynamics (GD) with weights of 7.60%, 6.90%, and 6.30%, respectively, as of September 5, 2017.