Updated 3/5/25
A. O. Smith Corporation is a well-known name in the water heating and treatment industry. For dividend investors, it offers a solid track record of consistent payments and steady increases over time. The company has positioned itself as a reliable dividend payer with a history of rewarding shareholders. Let’s take a closer look at how its dividend metrics stack up and whether it’s a good fit for long-term income investors.
Key Dividend Metrics
- Forward Annual Dividend Rate: $1.36 ✅
- Forward Dividend Yield: 2.07% ✅
- Trailing Dividend Yield: 1.98% ✅
- 5-Year Average Dividend Yield: 1.72% ✅
- Payout Ratio: 35.81% ✅
- Dividend Growth Rate (5-Year): Strong ✅
- Ex-Dividend Date: January 31, 2025 ℹ️
- Dividend Payment Date: February 18, 2025 ℹ️
With a payout ratio of just under 36%, A. O. Smith maintains a dividend that is well covered by earnings. The company’s yield is slightly above its five-year average, making it an appealing option for investors seeking a balance of income and growth.
Dividend Strength and Growth Potential
A dividend yield above 2% might not be the highest in the market, but for a company like A. O. Smith, which has a history of raising its dividend consistently, it speaks to long-term reliability. A dividend payout ratio under 40% signals that the company has plenty of room to continue increasing its payments while still reinvesting in its business.
A. O. Smith has been a dependable dividend payer for years, with a history of steady annual increases. For investors focused on long-term income, this kind of consistency is reassuring. The company’s ability to generate strong cash flows further supports the idea that its dividend is sustainable even in uncertain economic conditions.
Dividend Safety
When evaluating the safety of a dividend, free cash flow is often the best indicator. A. O. Smith generates nearly $390 million in levered free cash flow, more than enough to cover its dividend payments comfortably. A sustainable payout ratio and strong cash flow suggest that the company is in a position to continue growing its dividend well into the future.
The company also maintains a conservative financial structure with a debt-to-equity ratio of just over 12%. Having minimal debt reduces financial risk and makes dividend payments more secure, even during economic downturns.
Dividend Consistency
A. O. Smith’s dividend history is another factor that makes it an attractive choice for income investors. The company has consistently paid and increased its dividend for several years. Its ability to maintain payouts through different market cycles shows resilience and a commitment to rewarding shareholders.
Chart Analysis
The stock chart for A. O. Smith Corporation (AOS) shows a clear downtrend over the past several months, with the price moving from above $90 to its current level near $66. The decline has been steady, marked by lower highs and lower lows, suggesting persistent selling pressure.
The moving averages reinforce this downward momentum. The shorter-term orange line, likely the 50-day moving average, has been trending lower for months and remains below the longer-term blue line, which appears to be the 200-day moving average. This indicates that the stock has been in a bearish phase, with no significant signs of a trend reversal yet. The fact that the price remains below both moving averages suggests that resistance levels remain strong.
Volume trends show occasional spikes, particularly during periods of sharper declines, which could indicate capitulation selling. However, there are also bursts of buying activity, suggesting some attempts at support levels. The recent weeks show relatively lower volume, which could mean that selling pressure has eased slightly, but there hasn’t been a strong enough move to indicate renewed bullish interest.
The Relative Strength Index (RSI) in the lower portion of the chart suggests that the stock has been in oversold territory multiple times. The RSI remains at the lower end, indicating that while the selling may be extended, momentum is not yet shifting decisively in favor of buyers. If the RSI starts to rise above key levels, it could signal a potential stabilization phase.
The last five candles show a narrowing price range, with small-bodied candles that lack strong directional movement. This type of price action often reflects indecision in the market, with neither buyers nor sellers exerting dominant control. Some of these candles have lower wicks, suggesting that buyers have stepped in at certain levels to prevent further declines, but the lack of strong follow-through means that confidence in a sustained reversal is still weak.
The stock is hovering just above a potential support zone near $65, where previous buying interest has emerged. If this level holds, there could be an attempt to consolidate, but any meaningful recovery would likely require a move above the 50-day moving average to confirm that sentiment is shifting.
Analyst Ratings
In recent months, A. O. Smith Corporation (AOS) has experienced a variety of analyst ratings, reflecting both positive and cautious perspectives. The consensus among analysts is a “Hold” rating, with an average twelve-month price target of approximately $80.86, suggesting a potential upside from the current share price.
Upgrades:
- Oppenheimer: On January 14, 2025, Oppenheimer upgraded AOS from “Hold” to “Buy,” setting a price target of $88. This upgrade was based on expectations of improved operational performance and a favorable outlook in key markets.
- UBS: On October 23, 2024, UBS raised its rating from “Sell” to “Hold,” adjusting the price target from $75 to $80. The analyst cited stabilization in the company’s core business and potential benefits from cost management initiatives.
Downgrades:
- DA Davidson: On October 23, 2024, DA Davidson downgraded AOS from “Buy” to “Hold,” assigning a price target of $80. The downgrade reflected concerns about slowing growth in certain segments and potential margin pressures.
- Loop Capital: On January 17, 2025, Loop Capital lowered its rating from “Buy” to “Hold,” with a price target of $85. The analyst expressed caution due to competitive pressures and uncertainties in international markets.
These varied analyst perspectives highlight both the opportunities and challenges facing A. O. Smith Corporation in the current market environment.
Earnings Report Summary
A. O. Smith Corporation recently shared its latest earnings report, giving investors a look into how the company performed over the past year. Total sales for 2024 came in at $3.8 billion, which was slightly lower than the previous year. The main reason for this dip was weaker sales in China, which put some pressure on overall revenue. Net earnings landed at $533.6 million, with diluted earnings per share (EPS) at $3.63—about 2% lower than last year. Part of this decline was due to restructuring efforts, including adjustments in China and North America’s water treatment segment.
Despite some challenges, A. O. Smith continued to prioritize its shareholders, returning nearly $500 million through dividends and stock buybacks. The company also completed its acquisition of Pureit, though it didn’t have a major impact on financial results just yet.
Looking specifically at the fourth quarter, revenue dropped about 7% to $689.8 million. The decline was mostly due to lower demand for water heaters, though stronger pricing and better sales in boilers and water treatment products helped soften the impact. Segment earnings for the quarter were $7.8 million, with a margin of 3.3%, down from 10.2% in the same period last year. Adjusted earnings for the segment were a bit higher at $19.1 million, bringing the adjusted margin to 8.1%.
By the end of 2024, the company had $276.1 million in cash and $193.2 million in total debt, keeping its leverage ratio at a manageable 9.3%. Over the course of the year, A. O. Smith generated $581.8 million in cash from operations, while free cash flow came in at $473.8 million. This was a slight drop compared to the prior year, mainly due to higher inventory levels and lower earnings.
Stock buybacks remained a key part of the company’s strategy. In 2024, A. O. Smith repurchased 3.8 million shares for a total of $305.8 million, with more buybacks planned for 2025. The board recently approved an additional 5 million shares for repurchase, bringing the total authorization even higher. The company expects to spend around $400 million on share repurchases in the coming year, showing its ongoing commitment to returning capital to shareholders.
While 2024 had some hurdles, A. O. Smith remains focused on long-term growth. The company is making moves to strengthen its business, and with its strategic acquisitions and shareholder-friendly policies, it’s setting itself up for the future.
Financial Health and Stability
A dividend is only as strong as the financial health of the company paying it. While A. O. Smith has a lot of positives, there are a few financial trends worth noting.
Revenue has seen a slight decline, with a 7.7% year-over-year drop. Earnings are also down 20.1% compared to the previous year. While this isn’t necessarily a cause for immediate concern, consistent declines in these areas could impact future dividend growth.
Despite these challenges, the company remains highly profitable, with strong operating margins and a return on equity of nearly 29%. A. O. Smith also has a healthy cash position with over $276 million in cash and low debt obligations.
Valuation and Stock Performance
From a valuation standpoint, A. O. Smith is trading at a reasonable forward price-to-earnings ratio of about 17. That suggests the stock isn’t overly expensive relative to its earnings potential. Historically, the company has traded at higher multiples, so the current price level could be an opportunity for long-term investors.
The stock price has been under pressure, currently trading near its 52-week low of $64.55. The 50-day moving average is around $67.98, while the 200-day moving average is significantly higher at $77.54. This suggests that while the stock has seen some weakness, it could offer value for patient investors looking to buy at a discount.
Final Thoughts for Dividend Investors
For investors focused on dividends, A. O. Smith checks many of the right boxes. It has a strong history of paying and increasing its dividend, a manageable payout ratio, and a healthy balance sheet. The company’s business model is built around essential products, giving it stability even in volatile markets.
One area to watch is the recent decline in revenue and earnings. While the dividend remains safe for now, a prolonged period of declining financial performance could limit future dividend growth. The current stock price weakness could present a buying opportunity for long-term investors who believe in the company’s ability to rebound.
A. O. Smith remains a solid option for those looking to add a reliable dividend payer to their portfolio. The stock may not offer the highest yield, but its consistency and financial strength make it an attractive choice for income-focused investors.
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