We recently compiled a list of the 10 Best Diversified Dividend Stocks To Buy Now. In this article, we are going to take a look at where Honeywell International Inc. (NASDAQ:HON) stands against the other diversified dividend stocks.
In this article, we will take a look at some of the best diversified dividend stocks.
Diversified stocks refer to companies involved in multiple sectors, industries, or regions. These businesses, often large conglomerates like Warren Buffett’s Berkshire Hathaway, generate income from a variety of operations. The main goal of diversification is to lower risk by spreading investments across various areas, reducing the potential negative impact of poor performance in any one stock or sector. Nathan Wallace, principal wealth manager at Savvy Advisors, also supported the idea of diversifying portfolio. Here are some comments from the analyst:
“Through intelligent portfolio building and diversifying, investors can create a portfolio of risky assets with an aggregate volatility that is lower than any of the individual securities. The key here is to buy securities with attractive risk profiles that are not correlated to each other in a significant way with the goal that when one asset is performing poorly, another asset will pick up the slack through positive performance.”
That said, diversification doesn’t guarantee a lack of correlation between your investments. For example, owning 100 tech stocks might reduce risk compared to holding just one, but those 100 stocks are likely to be correlated with each other. To truly minimize risk, it’s important to diversify beyond just one sector. According to analysts, the higher yields on Treasury bonds could provide some protection in the event of a major stock market decline. Despite this, those who believe in diversification are facing uncertainty. US stocks continue to outperform year after year, driven by the consistent profits of American companies, making other investments seem like a path to underperformance.
On the other hand, a recent study by Preqin revealed that institutions, including pensions, endowments, and foundations, hold $21 trillion in traditional diversified strategies, as of June 2024. These strategies allocate funds across various investments such as bonds, stocks, real estate, and cash.
The year 2024 proved to be exceptional for US stocks, with the broader market rising over 23%. The Nasdaq outperformed with a nearly 29% gain, while the Nasdaq 100 rose close to 25%. These impressive gains were largely driven by the Magnificent 7 stocks, which surged by nearly 67%, along with other mega-cap companies. This marked the second consecutive year that the broader market achieved gains exceeding 20%, a feat last seen in the late 1990s.
Regardless of market conditions, investors have consistently sought comfort in dividend stocks. Among these, dividend growth stocks have gained significant interest. A report from BlackRock revealed that, over time, stocks that consistently increased or maintained their dividends have tended to perform better than those that didn’t pay dividends or cut their payouts. In times of market decline, dividend-paying stocks often offer a safeguard against fluctuating share prices. Companies that pay dividends typically aim to sustain these payments and are usually hesitant to reduce them unless it’s essential.
When considering dividend stocks, investors typically assess the dividend yield. Experts suggest targeting yields between 3% and 6%, as yields higher than this could signal potential yield traps. Brian Bollinger, president of Simply Safe Dividends, has highlighted this advice. Below are some insights from the analyst:
“I generally like to advocate for an approach of targeting great businesses that might pay closer to a 3% to 4% dividend yield.”
Our Methodology:
For this list, we scanned Insider Monkey’s database of Q3 2024 and selected conglomerate firms that specialize in several different businesses and pay regular dividends to shareholders. The list is ranked in ascending order based on the number of hedge funds having stakes in the companies.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A shot of a commercial plane with a blur of color in the background, representing the production of auxiliary power units in the Safety and Productivity Solutions segment.
Honeywell International Inc. (NASDAQ:HON)
Number of Hedge Fund Holders: 55
Honeywell International Inc. (NASDAQ:HON) ranks fifth on our list of the best diversified dividend stocks. The American multinational conglomerate company recently made it to headlines as the company announced that it is moving forward with a breakup after facing ongoing pressure from activist investor Elliott Investment Management, according to Bloomberg’s David Carnevali. The industrial company intends to separate into two independent publicly traded companies, one focused on automation and the other on aerospace and defense. Sources indicate that Honeywell may officially announce the plans alongside its fourth-quarter earnings report, which is set for release in early February.
Before the separation takes place, let’s review the company’s performance in the third quarter of 2024. The company reported revenue of $9.73 billion, which saw a 5.6% growth from the same period last year. Segment profit rose by 6% compared to the previous year, driven by strong performance in Aerospace Technologies and the full-quarter impact of the Access Solutions acquisition. In addition, segment margin remained steady year over year at 23.6%, surpassing the upper end of the company’s guidance range by 30 basis points.
Honeywell International Inc. (NASDAQ:HON) has grabbed investors’ attention due to its strong cash generation. The company generated $2 billion in operating cash flow in the most recent quarter and its free cash flow came in at $1.7 billion, up 10% on a YoY basis.
In September 2024, Honeywell International Inc. (NASDAQ:HON) declared a 4.6% hike in its quarterly dividend to $1.13 per share. This was the company’s 15th dividend hike in the past 14 years. The stock has a dividend yield of 2.03%, as of January 22.
The number of hedge funds tracked by Insider Monkey owning stakes in Honeywell International Inc. (NASDAQ:HON) grew to 55 in Q3 2024, from 50 in the previous quarter. These stakes have a total value of more than $877 million.
Overall HON ranks 5th on our list of the best diversified dividend stocks to buy now. While we acknowledge the potential for HON as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than HON but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stock To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.