Expectations and narratives can drive stock movements. A company's failure to meet expectations can lead to investor disappointment and poor stock performance. Honey (NASDAQ: HON), Unified parcel service (NYSE: UPS)and Chevron (NYSE: CVX) They may be industry leaders, but all of them have disappointed investors recently and their share prices have suffered as a result.
Despite their challenges, the three dividend stocks They are worth a closer look. Here's why.
Honeywell has failed to capitalize on megatrends
For several years, Honeywell has been discussing the Growth potential of the Industrial Internet of Things (IIoT), which is basically the overlay of software and hardware. Instead of monitoring the performance of standalone machinery, IIoT can connect a fleet using sensors and electronic components. An integrated system can provide data-driven insights, allowing operators to be proactive rather than reactive to equipment performance and maintenance cycles.
In addition to its IIoT opportunities, Honeywell has focused on the energy transition and the need for smarter buildings and warehouses that automate functions and consume less energy than older ones. It has a growing business in oil and gas, hydrogen and liquefied natural gas.
Honeywell’s largest segment is aerospace. It provides parts, components, controls, integrated solutions and more for the commercial aerospace and defense industries. It even has a $5 billion quantum computing business.
Yet despite its exposure to all these exciting topics, Honeywell’s results have been a flop. Revenue has recovered from its pandemic lows but is still below where it was before the crisis. Operating margins and diluted earnings per share (EPS) are also increasing, albeit slowly.
Management has implemented an aggressive capital allocation program focused on mergers and acquisitions (M&A) and share buybacks to spur earnings per share growth. A key strength of Honeywell has been its balance sheet, but its leverage is likely to increase as it pursues its plan to invest billions more in M&A and share buybacks.
Honeywell has raised its dividend every year since 2011 and its price-to-earnings (P/E) ratio today is below its three-, five- and seven-year average levels. Given its growing dividend and reasonable valuation, Honeywell looks like a worthwhile recovery bet for investors who believe its recent string of acquisitions will help drive growth in its target themes.
The worst may be over for UPS
UPS stock soared during the pandemic as consumers stopped shopping in person and started getting deliveries. The shipping and logistics giant expanded its routes, thinking that growth in package delivery volumes would remain elevated even after the pandemic, but that forecast proved painfully inaccurate.
Add to this costly pension obligations and a complicated contract negotiation process with the Teamsters union, and it's easy to see why UPS stock fell out of favor.
In March, UPS launched a three-year plan to get its business back on track, but so far it hasn't made significant progress toward its goals. The company has made a lot of mistakes in a short period, leading to a 45% drop from its all-time high. But there's reason to believe the worst may be over.
In the second quarter, UPS again reported volume growth in the U.S. for the first time since the fourth quarter of 2021. This is a positive sign in the short term. The outlook for its healthcare-related business is positive in the medium term. UPS expects the healthcare sector to contribute half of its growth over the next three years as it focuses on temperature- and time-sensitive deliveries.
Over the long term, UPS has an established position in the domestic and international shipping and logistics sector. The stock has sold off so much that its forward price-to-earnings ratio is now just 17 and its dividend yield is 5.1%. UPS may appeal to investors looking for a value stock that can turn things around, as well as an investment that can grow their passive income.
Chevron is an ultra-reliable dividend payer
Unlike Honeywell and UPS, Chevron hasn't disappointed investors by missing expectations, but it has a big question mark that may be holding back its stock price.
On October 23, 2023, Chevron announced an agreement to acquire the oil and natural gas exploration and production company Hess for 53 billion dollars. However, ExxonMobil has delayed that deal, citing nuances in contractual language regarding rights to a shared asset offshore Guyana.
Meanwhile, crude oil prices have fallen to their lowest levels of 2024 due to lower demand expectations and elevated production levels. Chevron has not made the operational mistakes of Honeywell or UPS. However, uncertainty over the fate of its Hess deal and lower oil prices have driven the stock to a 52-week low.
With a price-to-earnings ratio of just 13.9, its valuation looks very cheap, but that ratio could rise to a more expensive level if lower oil prices lead to lower earnings. Overall, Chevron is reasonably valued and boasts a 37-year consecutive streak of dividend increases and a 4.6% dividend yield, making it another passive income powerhouse to consider now.
“Charge” responsibly
Investors may look at Honeywell, UPS or Chevron and be tempted to invest in stocks in the hopes that they will turn around. And while it might be a good idea to buy stocks in all three, it's important to maintain diversification in a balanced portfolio.
If you invest too much in a few stocks or related themes, your portfolio can be at risk of outsized declines if the market crashes. A better approach is to allocate only larger holdings of your portfolio to the ideas that your investors most like and to gradually increase those positions over time.
Being in too much of a hurry to buy a stock can lead to stress, bad decisions and loss of purchasing power. No one knows when the next big stock market sell-off will occur, but when it does, it will be wise to feel comfortable with your positions.
The best way to prepare for this is to stay on top of your asset allocations and ensure that no single position becomes so large that a bad run in one industry can derail your portfolio's performance and prevent you from achieving your financial goals.
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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in Chevron and recommends it. The Motley Fool recommends United Parcel Service. The Motley Fool has a Disclosure Policy.
3 stocks with declining dividends that are worth buying right now Originally published by The Motley Fool
