Dividend Aristocrats In Focus: A.O. Smith Company

 Updated on February 18th, 2025 by Felix Martinez

Yearly, we individually consider the entire Dividend Aristocrats. We view them as considerably attention-grabbing shares for long-term dividend growth merchants.

The Dividend Aristocrats are a select group of shares throughout the S&P 500 which have had 25+ years of consecutive dividend will improve.

You may even see a full downloadable spreadsheet of all 69 Dividend Aristocrats, along with quite a lot of important financial metrics similar to price-to-earnings ratios, by clicking on the hyperlink beneath:

Disclaimer: Constructive Dividend is not going to be affiliated with S&P World in any method. S&P World owns and maintains The Dividend Aristocrats Index. The data on this text and downloadable spreadsheet depends on Constructive Dividend’s private consider, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and completely different sources, and is meant to help specific particular person merchants greater understand this ETF and the index upon which it’s based. Not one of many data on this text or spreadsheet is official info from S&P World. Search the recommendation of S&P World for official data.

The next Dividend Aristocrat in our 2025 sequence is A.O. Smith (AOS), which has elevated its dividend for 31 consecutive years.

This article will concentrate on A.O. Smith’s enterprise model, growth prospects, and valuation.

Enterprise Overview

A.O. Smith is a primary producer of residential and enterprise water heaters, boilers, and water treatment merchandise. Two-thirds of its product sales are in North America, and most of the steadiness are in China.

A.O. Smith was primarily based in 1874 and is headquartered in Milwaukee, WI. The company generates annual product sales above $3.8 billion.

A.O. Smith reported a 1% decline in 2024 product sales to $3.8 billion, primarily ensuing from weaker demand in China. Net earnings fell 4% to $533.6 million, with diluted EPS down 2% to $3.63, impacted by restructuring payments. Adjusted earnings dropped 5% to $548 million. The company returned $496 million to shareholders by the use of dividends and share repurchases and completed the Pureit acquisition, though it had minimal impression on 2024 outcomes.

In North America, product sales remained common at $3.0 billion, pushed by value will improve and higher boiler and water treatment product sales, though lower water heater volumes offset these options. Fourth-quarter product sales declined 7% to $689.8 million. The rest of World product sales fell 4% to $918.6 million, primarily ensuing from weaker demand in China, no matter a 13% native overseas cash product sales enhance in India. Fourth-quarter product sales on this part dropped 9%, with adjusted earnings declining ensuing from lower product sales volumes in China.

For 2025, A. O. Smith expects product sales growth to be between flat and a pair of%, with EPS projected to be between $3.60 and $3.90. North American water heater volumes are anticipated to stabilize, whereas product sales in China might proceed declining. India is anticipated to see continued double-digit growth. The company plans to repurchase $400 million in shares and stays focused on strategic investments, product innovation, and fixed dividend funds to drive long-term growth.

Provide: Investor Presentation

Progress Prospects

A.O. Smith’s growth catalysts throughout the U.S. embrace continued monetary growth and rising housing prices. As a producer of water heating, water treatment, and air purification merchandise, the company is reliant on a financially healthful shopper and housing market.

When residence prices are rising, and unemployment is low, buyers with disposable earnings are far more eager to place cash into upgrades like new water heaters.

The company has beloved fixed growth throughout the residence market all by way of most of the ultimate decade.

Rising markets similar to China are set to drive A.O. Smith’s growth.

Provide: Investor Presentation

China’s massive inhabitants, sturdy GDP growth, and booming heart class are essential tailwinds on this important market. In addition to, because of the nation’s excessive air air pollution, the demand for air purifiers ought to remain sturdy.

We anticipate A.O. Smith to develop earnings-per-share at a worth of 6% per 12 months by the use of 2030. The company must have the flexibility to acquire as a minimum this stage of growth ensuing from pure earnings growth and share repurchases, with potential additional acquisitions together with extra growth.

Aggressive Advantages & Recession Effectivity

A.O. Smith’s sturdy growth is due to its aggressive advantages, primarily its prime market share. A.O. Smith has the #1 market share in U.S. water heaters. It holds over 30% of the house residential market share and over 40% of the enterprise market share.

Possessing the best {{industry}} place presents A.O. Smith pricing vitality and extreme margins. In flip, this allows the company to generate a complete lot of cash circulation, which allows it to place cash into new product innovation.

One potential hazard for A.O. Smith is a recession. As a producer, the company is rigorously tied to the final monetary system’s nicely being. It’s not a extraordinarily recession-resistant enterprise model.

Earnings-per-share in the midst of the Good Recession are beneath:

• 2007 earnings-per-share of $0.48
• 2008 earnings-per-share of $0.49 (2% enhance)
• 2009 earnings-per-share of $0.57 (16% enhance)
• 2010 earnings-per-share of $0.43 (25% decline)
• 2011 earnings-per-share of $0.60 (39% enhance)

As you may even see, the company carried out very properly all through 2008 and 2009, the worst years of the recession. Earnings took a giant hit in 2010 nevertheless quickly recovered in 2011.

Complete, the company carried out exceptionally properly, as a result of it was nonetheless able to develop earnings over the course of the recession.

Valuation & Anticipated Returns

Based on the current share value of ~$65 and the midpoint of 2025 EPS guidance of $3.75, A.O. Smith shares in the meanwhile commerce for a price-to-earnings ratio of 17.3. We think about a price-to-earnings quite a lot of purpose of 19 is an relevant sincere value estimate for AOS stock.

Consequently, A.O. Smith seems undervalued correct now. If the P/E quite a lot of have been to increase to the sincere value estimate of 19, it might enhance annual returns by 2.3% over the next 5 years.

Earnings growth and dividends may even improve shareholder returns, which collectively add as a lot as 7.5% annualized returns. In summary, entire returns are anticipated to be 1.6% per 12 months over the next 5 years since valuation quite a lot of enlargement is anticipated to help the anticipated earnings-per-share growth and the dividend barely.

Closing Concepts

A.O. Smith is an industry-leading agency. It has the best mannequin in its class, with compelling future growth potential. Its dominant market share of its {{industry}} permits the company to proceed to beat short-term difficulties. Over the long term, we think about the potential growth options in rising markets are extraordinarily engaging.

Whereas the dividend yield is low, the company’s dividend growth tempo and observe file are spectacular.

Thus, the stock valuation stays sincere. Consequently, we view the stock as comparatively engaging to purchase. Nevertheless, we worth AOS stock a keep for now.

Furthermore, the following Constructive Dividend databases comprise in all probability essentially the most reliable dividend growers in our funding universe:

For individuals who’re looking for shares with distinctive dividend traits, take into consideration the following Constructive Dividend databases:

The primary residence stock market indices are one different sturdy helpful useful resource for finding funding ideas. Constructive Dividend compiles the following stock market databases and updates them month-to-month: