All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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
Honeywell International Inc. (HON) is headquartered in Charlotte, and is in the Conglomerates sector. The stock has seen a price change of -8.38% since the start of the year. The company is paying out a dividend of $1.03 per share at the moment, with a dividend yield of 2.1% compared to the Diversified Operations industry's yield of 0.15% and the S&P 500's yield of 1.73%.
In terms of dividend growth, the company's current annualized dividend of $4.12 is up 3.8% from last year. Over the last 5 years, Honeywell International Inc. has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.44%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Honeywell International Inc.'s current payout ratio is 46%, meaning it paid out 46% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, HON expects solid earnings growth. The Zacks Consensus Estimate for 2023 is $9.15 per share, which represents a year-over-year growth rate of 4.45%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 have to be mindful 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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