2010 Becomes The Year of the Conglomerates (GE, MMM, HON, UTX, BRK-A, SPY, DIA)

3M Co. (NYSE: MMM) has been a serial dividend raising company.  It has a low enough payout ratio and dividend coverage  ratio that those dividend hikes could be far more.  Its current dividend yield is 2.4%.  The company recently raised guidance for 2010 from $5.40 EPS to a higher range of $5.65 to $5.80 EPS.  It also raised revenue targets to a range of 13% to 15% from a prior 10% to 12% growth.

With a gain of 5.78% so far in 2010, 3M is only #2 of the 5 conglomerates in year to date performance.  Shares have traded as high as $90.00 over the last year, so 3M shares have just lagged in the upside and in the downside.  The consensus analyst price target is $102.43, implying upside of 18.6%.  With that sort of upside expected, with dividend hikes non-stop, higher guidance when the economy is slowing, and a lack of performance, investors could start to write “Buy MMM” on their Post-It notes.

Honeywell International Inc. (NYSE: HON) shows up as a defense firm in some screens, but if you look at the company’s description it is in fact a conglomerate: “Honeywell is a Fortune 100 diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; turbochargers; and specialty materials.”  A conglomerate.  Honeywell was at one point a target for a GE acquisition many years ago.

The conglomerate recently reported earnings with a 4% gain in net income and a better gain in revenues of 8%.  The stock is in the middle of its 52-week trading range despite is double-digit gains so far in 2010.  The consensus analyst price target is $51.28, implying upside still remains of 20%.  The company recently posted earnings ahead of estimates and it lifted its guidance for the year into a slowing economy with a new range of $2.40 to $2.50 EPS from its prior $2.30 to $2.45 range.  The dividend comes in at 2.80% and its new earnings guidance and analyst estimates should leave it with room for dividend hikes despite the notion that Friday’s dividend announcement for a payout of $0.3025 being the same as it has for the last six quarters.

United Technologies Corp. (NYSE: UTX) is the laggard of the conglomerate sector.  Shares have only gained 3.77% so far in 2010, making it the smallest gain of the five conglomerates.  The company dropped about 11,000 workers last year and recently disclosed that about 1,500 more pink slips are planned in its headcount reduction of 14,000.  The company’s profits grew by 14% in the most recent earnings report and it raised guidance for 2010 to a range of $4.60 to $4.70 EPS from a prior range of $4.50 to $4.65 EPS (includes restructuring and one-time items).  The consensus analyst price target is listed at $82.07, implying 15.3% upside to the consensus target.

The company boosted its 2010 dividend payout two quarters ago and the current yield is 2.40% for dividend investors.  With it being a laggard and only 10% south of a 52-week high and with a lower dividend yield, investors are not getting excited here.  Maybe the company should announce that it is hiring live bodies rather than adding to the weekly jobless lines.


It was surprising to see that the conglomerates are up this much when you consider that conglomerates really are supposed to be mini-representations of the broader stock market.  The S&P-tracking ETF in the SPDRs (NYSE: SPY) at $110.29 is down by less than 1% on the year from a December 31, 2009 adjusted closing price of $110.91.  The DIAMONDS (NYSE: DIA) at $104.67 are up about 1.5% versus an adjusted closing price of $103.05 on December 31, 2009.

So far Berkshire Hathaway has led the pack of conglomerates in performance.  Analysts are still looking for good upside in their objective price targets for a year out, and the pack actually has General Electric slated to have the most upside.  We recently noted in the 10 Biggest Dividend Stories of 2010 that the Chinese calendar should have called 2010 “The Year of the Dividend.”  Maybe it should really be “The Year of the Conglomerate.”

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