Update: Honeywell's 2015 Guidance Reaffirms Dividend Thesis

| About: Honeywell International, (HON)
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Summary

HON announced 2015 EPS guidance of $5.95-$6.15.

HON's annual dividend was recently increased to $2.07, which based on 2015 guidance represents a payout ratio of 34% of net income and 38% of free cash flow.

I am still maintaining my dividend target for 2018 of $2.89/share.

Honeywell (NYSE:HON) announced 2015 guidance that is more or less in line with my previous expectations. The main components of guidance include:

  • Sales of $40.5-$41.1 billion
  • Earnings per share of $5.95-$6.15
  • Free cash flow of $4.2-$4.3 billion

Chairman and CEO Dave Cote commented:

"We expect 2015 to be another strong year for Honeywell with across the board growth in sales, margin, EPS, and free cash flow, Our 2015 outlook tracks very well to the five year targets that we set for 2018 earlier this year. We sustained our 'seed planting' investments for the future, including innovating new products and technologies and expanding geographically, all of which will position the portfolio for continued growth."

In my previous article I had written that consensus EPS for 2015 was $6.10, which is within the current guidance range. HON's annual dividend was recently increased to $2.07, which based on 2015 guidance represents a payout ratio of 34% of net income and 38% of free cash flow. This reaffirms my thesis that dividend growth going forward will be driven to two key factors: EPS growth and a potential increase in the payout ratio.

The payout ratio for 2015 looks very conservative, and EPS is growing an attractive 9%. On this basis, I am still maintaining my dividend target for 2018 of $2.89/share, an increase of 40% over the current (increased) dividend.

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