The document discusses two main topics: 1) Dividend increases for Canadian National Railway and Wells Fargo of 14.7% and 13.6% respectively in January 2013. 2) How consumer staple companies like Heinz benefit from emerging markets, which are expected to account for 60% of global GDP growth and 95% of population growth until 2020, through sales of products tailored to local consumers and the growing middle class in these regions. Heinz derives close to 25% of its sales from emerging markets through this approach.

1. february 2013
cardinal
update
Dividend Increases
Canadian National Railway
Wells Fargo
(During the period: January 1–31, 2013)
14.7%
13.6%
Company Focus Industry Focus
Honeywell Consumer Staples
Honeywell International (HON) is a $37 billion diversified technology and manufacturing ‘Conservative’ and ‘emerging markets’ are terms
leader based in the United States, serving customers worldwide with aerospace products and that might not go hand-in-hand. But many U.S.
services; control technologies for buildings, homes and industry; turbochargers; and specialty food super companies such as Heinz and General
materials. More than half of the firm’s end products are sold to buyers outside of the United Mills give you that added bonus of exposure to
States. Best recognized as the company that manufacturers the home thermostat, their prod- faster growing emerging markets which supports
uct portfolio extends into many other business and end markets such as aerospace, refining, stable earnings growth, generous dividend yields
commercial construction, and transportation. and regular dividend increases.
HON offers products and services that are aligned with macro trends such as energy ef- Emerging markets are expected to account for
ficiency, globalization, safety, security, and customer productivity. More than 50% of HON’s 60% of global GDP growth and 95% of global
products are linked to energy efficiency to help meet the world’s energy challenges, whether population growth until 2020* and consumer
it is systems for buildings to improve heating and cooling or turbochargers for vehicles to re- staple companies stand to benefit. The emerg-
duce emissions and fuel usage without sacrificing power. We believe HON is well positioned ing middle class has more disposable income and
for long-term sustainability. aspires to purchase staple items such as ketchups,
sauces, cereal and packaged snacks that developed
In 2012, HON’s earnings per share increased 11% as profit margins expanded on the strength
market consumers consider indispensable. Heinz
of cost savings in the manufacturing process and in the back office. Their $3.7 billion in free
is a good example of a global consumer company
cash flow was used to increase dividends and reinvest in the firm via R&D, geographic expan-
that understands emerging markets. They develop
sion, and acquisitions. The dividend has increased 8.9% annually in the five years ending
products for the characteristics of local consum-
December 31, 2012 and we estimate it to grow 10% per annum from 2012 to 2014.
ers. For example, people are often paid daily in
We also expect Honeywell to post rising sales growth over the next few years due to growth emerging markets and tend to purchase food like
in global flying hours, a rebound in global residential and commercial construction, increased ketchup in small packs rather than jumbo bottles.
usage of turbo technologies and a robust demand in the petrochemicals and refining markets. As income grows, they purchase larger quantities
In 2013 we expect mid-single digit sales growth and margin expansion to result in double of the brands they’ve come to love.
digit EPS growth, coupled with a 10% dividend increase, and a rising valuation multiple.
Heinz’s approach has resulted in emerging
The Analyst Day in NYC on March 6th is expected to deliver an upbeat message given
markets contributing close to 25% of sales.
they are well within reach of attaining their long range financial targets. A new five year
General Mills and Kellogg’s also have strong
plan is expected to be released in early 2014 which should prove to be another catalyst for
emerging market businesses. Cardinal invests
HON’s share price.
in global consumer companies such as Heinz,
Unless otherwise noted, the source of all data in this Update is Bloomberg and Cardinal research. This Update is prepared for general informational purposes only. Statements about future performance may not be
General Mills, and Kellogg’s through the U.S.
realized and past performance is not a guarantee of future performance. Cardinal does not guarantee the accuracy or completeness of the information contained herein, nor does Cardinal assume any liability for
any loss that may result from the reliance by any person upon any such information or opinions. The information and opinions contained herein are subject to change without notice.
and Canada Plus mandates.
© 2013, Cardinal Capital Management, Inc. ALL RIGHTS RESERVED. NO USE, TRANSMISSION OR REPRODUCTION WITHOUT PERMISSION. *Source: Euromonitor
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