A global manufacturer for the long term
This highly diversified company is well-positioned to benefit from consumerism in emerging markets and the Industrial Internet.
honeywellis a well-established diversified industrial company with a reliable dividend track record. With a current dividend yield of approximately 2% combined with a favourable outlook for dividend growth, Marriott is of the view that Honeywell should form a core holding in an investor’s portfolio.
The graph highlights Honeywell’s dividend track record. Companies that can pay reliable growing dividends generally possess a diversified product offering, strong balance sheets, healthy cash flows and the ability to maintain or grow margins.
Honeywell is well-positioned to benefit from two important longer-term trends – developing market consumerism and the Industrial Internet.
Developing market consumerism
The GDP growth of major developing markets is increasingly being driven by household spending as they transition from investment-led to consumptiondriven economies. Described as “the biggest growth opportunity in the history of capitalism”, McKinsey & Company estimates that by 2025 annual consumption in developing markets will increase by $18tr and account for half of the world’s consumption. This is very positive for Honeywell’s dividend and capital growth prospects as all its business units stand to benefit from this trend.
For instance, as consumption increases, it becomes more important for manufacturers, retailers and logistics providers to get their products to consumers timeously, efficiently and safely. Honeywell is a leading provider in warehouse automation and supply chain software & technologies, which stands to indirectly benefit from the massive growth expected in e-commerce.
The Industrial Internet
Simply put, the Industrial Internet is the concept of connecting machines to the internet to collect and analyse data in order to optimise performance. Cisco – a worldwide leader in IT – estimates that by 2020, there will be over 26bn internetconnected devices, as illustrated in the chart.
Honeywell is considered one of the world leaders in this space. One example of its “connected offerings” is its airplane avionics systems that can detect and diagnose potential problems midflight, alert ground engineers of a fault and provide potential solutions. When the plane lands, the fault can be resolved quickly, allowing airlines to reduce downtime and keep passengers safe and happy.
In summary, Honeywell is a quality company with a favourable outlook for dividend growth as it stands to be a major beneficiary of developing world consumerism and the Industrial Internet.