Earlier this month, Honeywell International (HON) was selected by Japan Airlines to produce software that will improve flight efficiency, reduce fuel consumption and, ultimately, increase the airline’s profitability.

In February, Honeywell introduced an explosion-proof-rated, electromechanically sealed switch designed for commercial and household appliances to help prevent catastrophes in situations where flammable gasses might be present.

The previous month, it was announced that a Chinese petrochemical company would use Honeywell’s expertise to more than double the plant’s aromatics capacity.

Jeesh, what DOESN’T Honeywell do? Go to Mars?

Actually …

(From honeywell.com)

You get the idea. Honeywell’s tentacles reach across industries, around the world and even into outer space.

A proven industrial conglomerate such as HON is attractive for an investor because it is built and managed to achieve long-term success regardless of the bumps and bruises the market might face.

I explained in my previous article why I selected Honeywell for DTA’s Income Builder Portfolio, and on Tuesday, March 12, I executed a purchase order on Daily Trade Alert’s behalf for 7 shares at $153.53 apiece.

HON becomes the 24th position in the IBP, the real-money, Dividend Growth Investing-based portfolio we started building in January 2018.

It is the IBP’s third position from the Industrials sector, joining 3M (MMM) and Lockheed Martin (LMT).

It’s A Dividend Darling, HON!

Honeywell has been paying dividends, with nary a reduction nor interruption, for nearly three decades. The company has increased its payout for eight consecutive years, and has averaged about 13% dividend growth over the past five.

(Graphic from schwab.com)

Over the next 12 months, HON will generate more than $23 in dividends for the IBP.

The first quarterly payment of $5.74 — 82 cents, times 7 shares — will be in early June.

That will then be reinvested, as mandated by the IBP Business Plan; if the price is about the same as we paid, the dividend will buy .037 of a share.

Three months later, the new share total of 7.037 will produce $5.77 in income for more reinvestment … and come next fall, HON figures to raise the dividend again.

That’s how a reliable, growing income stream gets assembled, and it happens throughout the Income Builder Portfolio.

Honeywell’s dividend is dependable because the company easily generates more than enough free cash flow to pay it — as the following graphic from McLean Capital Research shows.

Analyze This!

Not surprisingly, analysts are bullish on Honeywell. Thomson Reuters surveyed 23 of them, with almost every pundit saying the stock was either a Buy or Strong Buy.

Schwab gives HON an “equity rating” of B, meaning its analysts feel the stock will outperform the market over the next year.

The analyst at CFRA has established a 12-month target price of $172 — which would be a 12% gain from the price we paid.

Valuation Station

Honeywell is not a bargain, but I’m always willing to consider an outstanding company at fair value.

Morningstar Investment Research Center estimates HON’s fair share price at $160. Getting even a small discount (as we did) is pretty good for a high-quality company with a wide moat and exemplary management.

Here are some more valuation metrics provided by Morningstar. The 3 stars indicate fair value.

Value Line gives Honeywell a “Relative P/E ratio” of 0.94, meaning it is a slightly better value than the average of the 1,700 companies it covers.

VL’s researchers believe HON’s share price will appreciate 10% to 35% over the next 3-5 years (blue circled area). Also note the quality: 1 is Value Line’s highest “Safety” score, and A++ is the best “Financial Strength” rating.

Using the metric it calls “blended P/E ratio,” FAST Graphs shows Honeywell to be somewhat overvalued compared to its norm.

Wrapping Things Up

I knew Honeywell made thermostats because I have one in my house, and I of course knew they were into lots of other stuff, too.

It was only in researching the company before buying a stake for my personal portfolio a few years back that I learned how incredibly diverse Honeywell’s products and services are.

This is a great American company that seemingly knows no boundaries — not even the stratosphere! — and I am glad HON is part of our Income Builder Portfolio.

— Mike Nadel

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