Growth From Products We Use Daily and Take for Granted

HON - Honeywell

Honeywell International Inc. is a diversified global technology and manufacturing company supplying industrial products, software, and services to a diversified set of customers.

Honeywell International operates through four operating segments:

  • aerospace (37% of 2018 sales);
  • Honeywell building technologies (22%);
  • performance materials and technologies (26%); and
  • safety and productivity solutions (15%).

The U.S. government is one of the primary customers of Honeywell. The company also sells specialty chemicals and advanced materials as well as energy efficiency products. Honeywell has become a household name with its products being used in more than 150 million homes worldwide. It is also a leading supplier of connected personal products, connected thermostats and home controls, fire and security systems, air and water purification solutions.

The company has a presence in more than 990 locations of which 252 are manufacturing sites. About 57% of Honeywell’s sales in 2018 were from the U.S., followed by 24% from Europe and 19% from other international markets.

Investment Data

Revenue Growth & Market Exposure

Honeywell has invented key technologies that address some of the world’s most critical challenges around energy, safety, security, productivity, and urbanization. It supplies industrial products, software and services to customers globally. It is the world’s leading manufacturer of turbo technology and electric boosting solutions used in aircraft and vehicles. The company is also a global leader in designing and creating pure, high-quality performance materials and software-based systems for complex industrial operations.

With more than a century’s old experience, Honeywell has garnered a strong global reputation. The company serves a diversified set of customers through a variety of products and services in aerospace, control, sensing, and security. Customers trust Honeywell for its product reliability and quality. It has uniquely positioned itself to sell comprehensive solutions comprising of both physical products and software for homes, businesses, and industries. Honeywell is creating a strong portfolio of products in emerging technologies such as automation control, IoT, etc. It has a strong presence in the clean technology industry with over half of Honeywell’s revenue linked to energy efficient products and is also building a strong position in the rapidly growing industrial IoT area using its strengths in industrial products and technology.

Honeywell’s strategic location in high growth regions is a key growth driver for the company. The company is also realigning its portfolio which should drive synergies as well as provide further investment opportunities in its remaining businesses.

Dividends

Honeywell is a Dividend Starter. Its sound track record of strong financial performance and a 37% payout ratio has enabled the company to grow dividend by 12.7% CAGR over the last five years. It sports an annual average dividend yield of 2.2%. Honeywell has announced an increase of 10% to its dividend payout effective in the fourth quarter of 2019, marking its tenth consecutive double-digit increase since 2010. The company also has a share repurchase plan in place. The company paid cash dividends of $2.3 billion and repurchased shares worth $4 billion in the last year.

Honeywell has grown its earnings at a rate of 10% CAGR in the last five years. It also registered a 22% growth in adjusted free cash flow in the last year.

Honeywell is growing strong through acquisitions and has successfully completed and integrated acquisitions worth $9 billion since 2015. The company continues to actively seek acquisition opportunities. It has simplified its portfolio by spinning three businesses since 2015 – AdvanSix (ASIX), Garrett (GTX), and Resideo (REZI). Honeywell also stands to benefit from its new product development pipeline which comprises of an online marketplace for new and used aircraft parts, robotics solutions, augmented reality-enabled industrial technologies, etc. All its efforts should result in faster organic sales growth, margin expansion, and make it more cash-efficient while actively deploying capital.

Honeywell is targeting annual organic growth in the low-to-mid single-digit range, and dividend growth aligned with earnings growth. Honeywell is also focusing on 23% margin expansion over the long-term. It should, therefore, continue its dividend growth streak in the high single to low double digit rate in the future as well.

Competition

Honeywell competes with a host of companies in substantially all product and service areas. Garmin, United Technologies, Emerson Electric, Itron, Johnson Controls, Schneider Electric, DowDupont, 3M, etc, are a few of its leading competitors. A broad portfolio of technology, intensive products and services, global distribution network and presence in growing areas like IoT and energy efficiency are Honeywell’s key strengths.

Bottom Line

Honeywell addresses some of the most critical challenges in the world. The company’s recent efforts around portfolio optimization should further streamline synergies and enhance balance sheet strength. Its diversification by customers, products and geographies further insulates it from fluctuations in any one of the areas. Honeywell’s strong balance sheet poses ample capacity for capital deployment. It should, therefore, continue its dividend growth streak in the future as well.

HON vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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