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You know that buying a stock makes you part owner of a company, theoretically with millions of other people. But, while ownership has its privileges (at minimum you get a neat stock certificate and an invitation to the annual meeting), being an owner doesn't necessarily pay. Sure, you make money if the stock goes up, but only if you sell, and you can, in theory, lose all the value of your investment if the stock tanks.
Enter the dividend. Here, you get money simply from holding the stock. Companies pay a yield, which is expressed in a percentage based on the stock's price. For example, if a stock trades at $10, and pays a 10% annual yield, your dividend payment would be a $1. (Usually, companies break out the payments quarterly, so, using our example, you¿d get, well, a quarter each quarter.)
Companies that pay dividends fall into a few categories. First, you've got your big, stable companies that generate enough cash that it makes sense to throw some back to shareholders. Next, there are businesses, like real estate investment trusts, that are in the business of sitting back and receiving cash, then distributing it to holders. And, then there are companies that need to dangle a high dividend yield like a carrot to ease investor fears. Cigarette-maker Altria has been doing this for years.
Simply because a company pays a dividend doesn't make it a good investment. After all, you may want to take a chance on a growth stock that can move higher in price than dividend payers are known to do. But, you can¿t beat the safety of knowing that, even if a stock doesn't move in a year, you¿re at least making something off your investment.
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Friday, July 18, 2008
Honeywell 2Q Profit Up 18%; Hikes Forecast
Reuters
BOSTON--Honeywell International Inc. (HON) reported Friday that quarterly profit jumped 18%, topping expectations, and raised its full-year earnings forecast, citing strong demand for aircraft electronics and environment and security control systems used in large commercial buildings.
The world's biggest maker of cockpit electronics said second-quarter profit rose to $723 million, or 96 cents per diluted share, from $611 million, or 78 cents per diluted share, a year earlier.
Analysts, on average, expected profit of 94 cents per share, according to Reuters Estimates.
Like other major manufacturers, Honeywell has been hard-hit this year by surging energy and metals costs. The company has aimed to offset the higher costs by raising prices and looking for other places to reduce expenses.
Revenue came to $9.67 billion, up 13.3% from $8.54 billion a year earlier. Almost three-quarters of the growth came from outside the United States, with 3 percentage points the result of exchange-rate fluctuations.
Following the pattern of other major U.S. manufacturers this week, Honeywell raised its full-year profit target by 5 cents to a range of $3.75 to $3.85 per share. Wall Street looks for $3.79 per share.
"We are well positioned to execute and deliver results in a tougher economic environment," Dave Cote, chairman and chief executive, told investors on a conference call.
Honeywell shares rose nearly 4% to $52.80 in premarket trading from the close of $50.86 on the New York Stock Exchange.
Fellow diversified industrials United Technologies Corp (UTX), Danaher Corp (DHR) and Illinois Tool Works Inc. (ITW) all raised their full-year profit targets on Thursday.
Honeywell's competitors include United Tech in aerospace and building control systems, Goodrich Corp. (GR) in aviation, and DuPont Co. (DD) in specialty materials.
The company said it expects a third-quarter gain from the sale of its aerospace fasteners unit to B/E Aerospace Inc. (BEAV) for $1.05 billion in cash and stock. But that gain, not factored into the raised profit forecast, could be offset by restructuring costs.
Morris Township, New Jersey-based Honeywell has benefited from continued strength in the aviation and commercial construction sectors, particularly in Asia and the Middle East, which have offset weakness in the U.S. economy.
As of Thursday's close, Honeywell shares were down about 17% so far this year, roughly in line with the 18% slide of the Standard & Poor's capital-goods industry index .
In February, publisher Dow Jones dropped Honeywell from its benchmark industrial average, the oldest and most widely watched barometer of U.S. stock activity.
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