There's a lot of noise in the market right now. From a resurgence in meme-stock activity to the cryptocurrency crash, it can be hard to stay focused on the stock market's most attractive quality -- the ability to compound wealth at over 7% per year over time.

Some stocks have been known to do even better than the S&P 500's already respectable return. Honeywell International (HON -0.31%), one of the world's largest industrial conglomerates, is one such investment that continues to deliver. Despite a challenging 2020, Honeywell could be a dividend stock that beats the market, yet again, in 2021. Here are four reasons why it's worth buying now.

A group of four people holding their thumbs up.

Image source: Getty Images.

1. The safety productivity solutions segment should continue to boom

Honeywell's business consists of four primary segments:

  • Aerospace, which focuses on commercial aerospace, defense, and space
  • Honeywell building technologies (HBT), which targets non-residential customers in virtually every industry (think temperature control and smart building technologies in hospitals, schools, etc.)
  • Performance materials and technologies (PMT) for the oil, gas, special chemical, and petrochemical industries
  • Safety productivity solutions (SPS) for industrial productivity such as workflow efficiency and warehouse automation

Honeywell SPS was the only segment that grew organic sales in 2020. Warehouse automation solutions were in hot demand as e-commerce and a vaccine rollout spurred a need for efficiency. Workplace safety and productivity (like demand for personal protective equipment) also came into focus. And finally, internet of things (IoT) and automation are two multiyear trends that showed few signs of slowing down during the pandemic.

SPS grew organic sales by 6% in 2020, but the first quarter of 2021 was the real standout. The segment notched record-high sales of $2.1 billion, representing 47% year-over-year organic growth.

Even better, the segment's backlog is up 70% year over year and is now above $4 billion -- $2.1 billion of which is related to warehouse and workflow solutions. SPS is showing signs of increased revenue growth and potential margin expansion, which should add stability to Honeywell's 2021 performance. 

2. Aerospace and oil and gas are recovering

While SPS shined in 2020, aerospace and PMT struggled. Aerospace is Honeywell's largest segment, supporting the commercial-aviation market, defense, and space industry by making a variety of components, equipment, machinery, and software solutions. However, the majority of its sales are tied to commercial aviation -- one of 2020's worst-hit markets. As a result, aerospace organic sales nosedived 18% in 2020. 

The company is optimistic that the segment will stage a recovery as flight hours and build rates increase. The data shows it could be right.

The U.S. Transportation Security Administration (TSA) tracks its checkpoint numbers and posts them daily, which is a useful yardstick to gauge U.S. air travel. So far in May, throughput is down just 35% from May 2019 levels, which is a significant improvement from earlier months. 


May 2021 (as of May 25)

April 2021

March 2021

February 2021

January 2021

Average TSA throughput decline compared to 2019






Data source: U.S. TSA 

Given the success of the vaccine rollout, it's reasonable to assume that travel volumes should continue to increase into the summer. There will likely be some lag time between business improvements and demand for Honeywell's products, but the recovery we're seeing in May is nevertheless encouraging.

A similar theme is taking place in oil and gas. Demand for transportation fuels and products derived from crude oil is improving, which should help the PMT segment in the coming quarters. However, Honeywell noted in its first-quarter investor presentation that it still wasn't seeing an uptick in oil and gas spending.

Last year, many producers slashed spending and curtailed production in order to survive the onslaught of lower demand and crippled prices. Most companies are still licking their wounds. So although oil and gas prices have been strong all year, it's going to take more time for the PMT segment to recover to its 2019 levels.

3. Financial strength

Like other industrial stocks, Honeywell is benefiting from an uptrend in the business cycle. However, what separates Honeywell from the pack is its financial strength.

Its balance sheet was able to take on debt without impacting financial health. Although total net long-term debt is at a three-year high, its debt-to-equity ratio is just 0.14, and debt-to-capital is 54% -- which is excellent for an industrial conglomerate of Honeywell's size.

HON Financial Debt to Equity (Quarterly) Chart

HON Financial Debt to Equity (Quarterly) data by YCharts.

4. Dividends and share buybacks

Honeywell's strong balance sheet means it can use excess cash to grow its business, buy back stock, or pay dividends. It deployed around $3 billion toward these efforts in the first quarter, which included buying back around 4 million shares of its stock. 

Honeywell hasn't raised its dividend as consistently as other major industrials have. And it's certainly a long way away from earning Dividend Aristocrat status. However, the company hasn't cut its dividend since 1994 and has raised it every year since 2011. Shareholders probably don't mind inconsistent dividend raises considering Honeywell has handily outperformed the S&P 500 over the last decade.

HON Total Return Level Chart

HON Total Return Level data by YCharts.

An attractive combination 

Honeywell exhibits a rare combination of business growth, value, a stable balance sheet, and a growing dividend. One of the few cons is its valuation, which is higher than historic levels because of weak 2020 earnings and a rising stock price.

Investors who are looking to allocate $1,000 toward a relatively safe investment that directly benefits from the economic recovery could benefit from picking up a few shares of Honeywell.