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.

Finweek English Edition - - MARKET PLACE - Edi­to­rial@fin­week.co.za Robin Hart­slief is an in­vest­ment pro­fes­sional at Mar­riott.

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.

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