Honeywell (HON) - Record Cash Flow and Strong Dividends

There are increasing signs that the heavy industry and engineering markets across the globe are rebounding, and this gives further impetus to the economic recovery.

Investors looking to cash in on this trend would do well to consider industrial heavyweight Honeywell (HON) for their portfolios. Honeywell (HON) is a key player in the aerospace products and services, control technologies, automotive products, and power generation systems markets.

The company has already indicated that it is on track to deliver record free cash flows and this is translating into bigger dividends.

While Honeywell (HON) trades on a historic dividend yield of 2.5%, an important number to remember when assessing this stock and its dividend is that of dividend growth over the last 5 years. Its annual dividend growth rate is 10.4% driven by strong cash flows which have consistently been above $3bn a year from operating activities for the last three years.

Reporting third quarter earnings recently, Honeywell (HON) gave further signs that the global economy was improving.

Third quarter sales rose 9%, to $8.4bn, with earnings per share coming in at $0.64. Free cash flow was $1.2bn up from $1bn in the same quarter in the previous financial year. Honeywell (HON) had continued growth across the portfolio with its short cycle businesses, such as turbochargers and general industrial products, extending their strong upward trends. There was also a noticeable uptick in the commercial aerospace aftermarket. The longer cycle Solutions businesses and UOP demonstrated good growth in the quarter as well. Cash flow, driven by high quality earnings and very strong working capital performance, was exceptional and the company now expects record free cash flow for the year.

Honeywell's (HON) aerospace division has recently been awarded a major tender from the Brazilian authorities to deliver and install its Smart Path™ system at Galeao-Antonio Carlos Jobim International Airport in Rio de Janeiro.

On top of this was the performance of its automotive division which grew revenue 19% in the last quarter. This the company says is likely to continue as it expects the global turbo industry to double in the next five years, from 17m new turbo vehicles in 2009 to 35m in 2015. In the U.S., turbocharged vehicles are expected to grow from nearly one million (5%) of vehicles sold today to more than four million (more than 20%) in five years. In China, turbo charging is anticipated to grow from approximately 10% today to 20% by 2015.

With the company trading on a price to earnings (PE) multiple of 15 times earnings, Honeywell (HON) appears to offer investors some promising long term prospects and with the cash-flow producing dividends, it should appear on the radar of dividend investors as well.