With commission free trades taking over the marketplace, investors can now average in on a daily basis. A few weeks ago, I purchased Altria, only to watch the share price fall 15% in a very short period of time. The Juul vaping scandal came out of nowhere and absolutely destroyed the stock (for a while). Had I averaged in and bought 1-2 shares/day I would have cut my short-term losses in half. In reality, I would have been able to purchase an additional 2 shares with the same amount of capital. Therefore, for the month of October I decided to buy a new stock, albeit at a much slow pace. I bought only 1 share of Honeywell (HON) and plan on buying more in 1-share increments.
Honeywell International is a diversified industrial company involved in several different segments. The company operates in aerospace, software, building technology, production management, safety, and more. However, aerospace is by far its largest business (37% of revenue). The company is truly and international play with 43% of revenue coming from overseas. Honeywell carries a slightly above average P/E of 19.8 and pays a dividend of 2.2%. The payout ratio stands at close to 40% leaving plenty of room for dividend growth. Earnings have increased every year for the past 10 years and the dividend has nearly tripled. This company appears to be one serious dividend growth stock!
The company carries a debt-to-equity ratio of 0.61, indicating significant financial strength. Over 2018, the company made excellent progress in paying down debt. According to analysts, EPS is expected to be marginally higher in fiscal 2019 ($8.10) before returning to solid growth in 2020. The company’s P/E is certainly higher than the industry’s average. Even when factoring in growth, the PEG ratio stands at 2.23, indicating overvaluation. Honeywell has been selling off underperforming assets, resulting in revenue contraction, but decent organic sales growth. Like other diversified conglomerates, Honeywell is attempting to become leaner and increase its return on assets.
Honeywell is perhaps one of the most complex investments in my portfolio. Therefore, it makes sense to cover this company a few more times in the near future. Overall, Honeywell appears to be a fantastic company but somewhat overvalued. HON has fantastic earnings growth, a rapidly growing dividend, and a diversified product offering. I like achieving balance in my portfolio. Companies like MO and ABBV are decent companies but nowhere near the quality of Honeywell. MO & ABBV add high current yield. HON, in contrast, is both a safety and growth play. Balancing these two types of securities allows the portfolio to generate both income AND growth. However, due to the company’s rich valuation, I will be buying in 1 share increments over the next few weeks.
DISCLAIMER: I am long on HON, ABBV, and MO. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.