Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Honeywell International Inc. In Focus

Headquartered in Charlotte, Honeywell International Inc. (HON Quick QuoteHON - Free Report) is a Conglomerates stock that has seen a price change of -7.91% so far this year. The company is currently shelling out a dividend of $2.06 per share, with a dividend yield of 2.09%. This compares to the Diversified Operations industry's yield of 0.16% and the S&P 500's yield of 1.75%.

In terms of dividend growth, the company's current annualized dividend of $4.12 is up 3.8% from last year. In the past five-year period, Honeywell International Inc. has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.44%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Honeywell International Inc.'s payout ratio is 46%, which means it paid out 46% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for HON for this fiscal year. The Zacks Consensus Estimate for 2023 is $9.15 per share, representing a year-over-year earnings growth rate of 4.45%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, HON is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).