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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Honeywell International Inc. In Focus
Headquartered in Charlotte, Honeywell International Inc. (HON) is a Conglomerates stock that has seen a price change of -13.82% so far this year. Currently paying a dividend of $0.98 per share, the company has a dividend yield of 2.18%. In comparison, the Diversified Operations industry's yield is 0.2%, while the S&P 500's yield is 1.76%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.92 is up 4% from last year. In the past five-year period, Honeywell International Inc. has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.16%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Honeywell International Inc.'s current payout ratio is 49%. This means it paid out 49% of its trailing 12-month EPS as dividend.
HON is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $8.68 per share, with earnings expected to increase 7.69% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, HON is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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