Up to date on February 18th, 2025 by Felix Martinez
Yearly, we individually overview all of the Dividend Aristocrats. We view them as notably interesting shares for long-term dividend progress buyers.
The Dividend Aristocrats are a choose group of shares within the S&P 500 which have had 25+ years of consecutive dividend will increase.
You possibly can see a full downloadable spreadsheet of all 69 Dividend Aristocrats, together with a number of necessary monetary metrics corresponding to price-to-earnings ratios, by clicking on the hyperlink beneath:
Disclaimer: Positive Dividend isn’t affiliated with S&P International in any method. S&P International owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet is predicated on Positive Dividend’s personal overview, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s based mostly. Not one of the info on this article or spreadsheet is official knowledge from S&P International. Seek the advice of S&P International for official info.
The subsequent Dividend Aristocrat in our 2025 sequence is A.O. Smith (AOS), which has elevated its dividend for 31 consecutive years.
This text will talk about A.O. Smith’s enterprise mannequin, progress prospects, and valuation.
Enterprise Overview
A.O. Smith is a number one producer of residential and business water heaters, boilers, and water remedy merchandise. Two-thirds of its gross sales are in North America, and many of the steadiness are in China.
A.O. Smith was based in 1874 and is headquartered in Milwaukee, WI. The corporate generates annual gross sales above $3.8 billion.
A.O. Smith reported a 1% decline in 2024 gross sales to $3.8 billion, primarily as a consequence of weaker demand in China. Web earnings fell 4% to $533.6 million, with diluted EPS down 2% to $3.63, impacted by restructuring bills. Adjusted earnings dropped 5% to $548 million. The corporate returned $496 million to shareholders by means of dividends and share repurchases and accomplished the Pureit acquisition, although it had minimal influence on 2024 outcomes.
In North America, gross sales remained regular at $3.0 billion, pushed by value will increase and better boiler and water remedy gross sales, although decrease water heater volumes offset these good points. Fourth-quarter gross sales declined 7% to $689.8 million. Remainder of World gross sales fell 4% to $918.6 million, primarily as a consequence of weaker demand in China, regardless of a 13% native foreign money gross sales improve in India. Fourth-quarter gross sales on this phase dropped 9%, with adjusted earnings declining as a consequence of decrease gross sales volumes in China.
For 2025, A. O. Smith expects gross sales progress to be between flat and a couple of%, with EPS projected to be between $3.60 and $3.90. North American water heater volumes are anticipated to stabilize, whereas gross sales in China could proceed declining. India is anticipated to see continued double-digit progress. The corporate plans to repurchase $400 million in shares and stays targeted on strategic investments, product innovation, and constant dividend funds to drive long-term progress.
Supply: Investor Presentation
Progress Prospects
A.O. Smith’s progress catalysts within the U.S. embrace continued financial progress and rising housing costs. As a producer of water heating, water remedy, and air purification merchandise, the corporate is reliant on a financially wholesome client and housing market.
When residence costs are rising, and unemployment is low, shoppers with disposable revenue are far more keen to spend money on upgrades like new water heaters.
The corporate has loved constant progress within the home market all through many of the final decade.
Rising markets corresponding to China are set to drive A.O. Smith’s progress.
Supply: Investor Presentation
China’s large inhabitants, strong GDP progress, and booming center class are main tailwinds on this necessary market. As well as, due to the nation’s extreme air pollution, the demand for air purifiers ought to stay sturdy.
We anticipate A.O. Smith to develop earnings-per-share at a price of 6% per yr by means of 2030. The corporate ought to be capable of obtain at the very least this degree of progress as a consequence of natural income progress and share repurchases, with potential further acquisitions including additional progress.
Aggressive Benefits & Recession Efficiency
A.O. Smith’s sturdy progress is because of its aggressive benefits, primarily its prime market share. A.O. Smith has the #1 market share in U.S. water heaters. It holds over 30% of the home residential market share and over 40% of the business market share.
Possessing the highest {industry} place provides A.O. Smith pricing energy and excessive margins. In flip, this permits the corporate to generate a whole lot of money circulate, which allows it to spend money on new product innovation.
One potential threat for A.O. Smith is a recession. As a producer, the corporate is carefully tied to the general financial system’s well being. It’s not a extremely recession-resistant enterprise mannequin.
Earnings-per-share throughout the Nice Recession are beneath:
- 2007 earnings-per-share of $0.48
- 2008 earnings-per-share of $0.49 (2% improve)
- 2009 earnings-per-share of $0.57 (16% improve)
- 2010 earnings-per-share of $0.43 (25% decline)
- 2011 earnings-per-share of $0.60 (39% improve)
As you possibly can see, the corporate carried out very properly throughout 2008 and 2009, the worst years of the recession. Earnings took a big hit in 2010 however rapidly recovered in 2011.
Total, the corporate carried out exceptionally properly, because it was nonetheless capable of develop earnings over the course of the recession.
Valuation & Anticipated Returns
Primarily based on the present share value of ~$65 and the midpoint of 2025 EPS steering of $3.75, A.O. Smith shares presently commerce for a price-to-earnings ratio of 17.3. We consider a price-to-earnings a number of goal of 19 is an acceptable honest worth estimate for AOS inventory.
Consequently, A.O. Smith appears undervalued proper now. If the P/E a number of had been to extend to the honest worth estimate of 19, it might improve annual returns by 2.3% over the following 5 years.
Earnings progress and dividends can even enhance shareholder returns, which collectively add as much as 7.5% annualized returns. In abstract, complete returns are anticipated to be 1.6% per yr over the following 5 years since valuation a number of enlargement is anticipated to assist the anticipated earnings-per-share progress and the dividend barely.
Ultimate Ideas
A.O. Smith is an industry-leading firm. It has the highest model in its class, with compelling future progress potential. Its dominant market share of its {industry} permits the corporate to proceed to beat short-term difficulties. Over the long run, we consider the potential progress alternatives in rising markets are extremely engaging.
Whereas the dividend yield is low, the corporate’s dividend progress tempo and observe file are spectacular.
Thus, the inventory valuation stays honest. Consequently, we view the inventory as comparatively engaging to buy. However, we price AOS inventory a maintain for now.
Moreover, the next Positive Dividend databases comprise essentially the most dependable dividend growers in our funding universe:
In the event you’re in search of shares with distinctive dividend traits, think about the next Positive Dividend databases:
The foremost home inventory market indices are one other stable useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month:
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