Last update on 2024-06-27

A.O. Smith (AOS) - Dividend Analysis (Final Score: 6/8)

Explore the performance and stability of A.O. Smith (AOS)'s dividend policy through an 8-criteria scoring system, scoring 6/8. Learn if AOS is a good investment.

Short Analysis - Dividend Score: 6

We're running A.O. Smith (AOS) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

A.O. Smith (AOS) is evaluated based on an 8-criteria system to see how well it handles its dividend policy. The analysis gives A.O. Smith a solid score of 6 out of 8. Here are some key points they considered: 1. **Dividend Yield**: A.O. Smith’s current yield is slightly below the industry average, but historically it has been growing, showing potential for improvement. 2. **Dividend Growth**: Over the last 20 years, A.O. Smith has shown a strong average dividend growth rate of about 16.7894%. This indicates healthy financial growth over the years. 3. **Payout Ratio**: Their payout ratio is very healthy, averaging around 33.20%, which is well below the 65% threshold, indicating good profit management. 4. **Earnings Coverage**: It's shown that the company’s earnings are well above the dividends, with a coverage ratio of about 3.29 times in 2023. 5. **Cash Flow Coverage**: Evaluating the cash flow coverage shows that A.O. Smith consistently covers its dividends through their free cash flow, supporting sustainable dividends. 6. **Stable Dividends**: A.O. Smith has shown stable or growing dividends over the past 20 years, ensuring reliability for investors. 7. **25-Year Dividends**: The company has been paying and increasing dividends consistently for over 25 years, highlighting a strong return on investment reliability. 8. **Stock Repurchases**: A.O. Smith has been committed to stock repurchase, which supports increased earnings per share over time.

Insights for Value Investors Seeking Stable Income

Based on this analysis, A.O. Smith (AOS) looks like a strong stock choice for investors focusing on dividends. The company has shown consistency in returning value to shareholders through dividends and stock repurchases for over two decades. Its solid growth in dividends and healthy profit management are good signs. However, investors should keep an eye on the slight drop below the industry average dividend yield and ensure the earnings and cash flow support continues. Overall, A.O. Smith could be a good addition to a long-term investment portfolio focused on steady and growing income.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is the ratio of a company's annual dividend to its stock price, expressed as a percentage.

A.O. Smith's current dividend yield of 1.4799% is slightly below the industry average of 1.57%. However, it's important to view this in a historical context. Over the past 20 years, A.O. Smith's dividend yield has fluctuated, peaking at 2.5069% in 2008 and hitting a low of 0.8528% in 2013. The current yield is below the long-term average, indicating a potential undervaluation of the stock price, or it may suggest a recent increase in the stock price without a corresponding increase in the dividend payout. Generally, a higher yield is attractive to income-focused investors, as it indicates more income generated relative to the price paid for the stock. Considering the historical average of 1.6469%, the current yield, while lower than industry average, shows room for potential growth or stock price correction. Additionally, over the long term, the dividend per share has been continually increasing, reaching $1.22 in 2023 from $0.0967 in 2003, which is a robust growth trajectory, affirming the company’s commitment to return value to shareholders.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend Growth Rate denotes the annualized percentage rate of growth that a particular stock's dividend undergoes over a period of time; a higher rate indicates robust company financial health.

Evaluating A.O. Smith (AOS) over the last two decades, the Dividend Per Share Ratio predominantly showcases positive growth trajectories, albeit with some fluctuations. Noteworthy spikes occurred in 2012 (153.3333%) and significant dips in 2013 (-39.4737%). On average, the Dividend Growth stands at an impressive 16.7894%. This sustained above-5% growth undoubtedly signifies a commendable trend, suggesting strong corporate earnings and a shareholder-friendly disposition, representative of A.O. Smith's sound fiscal strategies and consistent profit increments. Thus, this criterion indicates a positive trend for potential investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average payout ratio below 65% signifies the company's ability to sustainably cover its dividend payouts from profits, thus indicating robust financial health.

A.O. Smith (AOS) has maintained an average payout ratio of 33.20% over the last 20 years. This is significantly lower than the 65% threshold, suggesting that the company has consistently generated sufficient earnings to cover its dividends. The trend appears to be positive, confirming AOS's strong dividend sustainability and prudent financial management. The only outlier observed was in 2022, with a payout ratio of 74.87%, a deviation likely due to specific circumstances rather than a regular occurrence, as the preceding and succeeding years have ratios well below 65%.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

The dividend coverage ratio is a key indicator of a company's ability to maintain its dividend payments. This ratio is calculated by dividing Earnings Per Share (EPS) by the Dividend Per Share (DPS). For A.O. Smith (AOS), EPS has seen a general upward trend from 2003 to 2023, increasing from $0.2928 to $3.7118. Similarly, DPS has also increased from $0.0967 to $1.22 over the same period. By calculating their ratio, we observe that the dividends are well covered by the earnings. For instance, in 2023, the coverage is approximately 3.29 times. This trend is good as it shows that the company has a strong ability to cover its dividends through its earnings across the years.

Dividends Well Covered by Cash Flow?

Explain the criterion for A.O. Smith (AOS) and why it is important to consider

Dividends well covered by cash flow ensure the sustainability of the dividend payments and the financial health of the company. It is crucial to evaluate whether a company's free cash flow adequately covers its dividend payouts, as this reflects its ability to generate sufficient cash to fund its dividend payments without resorting to external funding sources, which could be detrimental in the long run.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividend payments over the last 20 years are quintessential for income-focused investors. This usually indicates the company's ability to generate consistent cash flows, reflecting a resilient and reliable business model. A decrease greater than 20% signals potential instability and could be a red flag for prospective investors looking for steady income.

An analysis of A.O. Smith's (AOS) dividend payments over the past two decades reveals a consistent upward trajectory in annual dividends per share. Beginning at $0.0967 in 2003 and reaching $1.22 in 2023, the dividends never dropped by 20% or more in any given year. For instance, from $0.11 in 2006, it slightly dipped to $0.1067 in 2005, which is far less than 20%. This remarkable consistency underscores the company's prowess in generating sustainable cash flows and managing its financials judiciously, making it a reliable entity for income-seeking investors.

Dividends Paid for Over 25 Years?

Assess the consistency and longevity of dividends paid over a 25-year period by analyzing the dividend per share data for A.O. Smith (AOS). This criterion checks if the company can provide stable returns for long-term investors.

A.O. Smith (AOS) has demonstrated remarkable consistency in paying dividends for over 25 years. Starting from a dividend per share of $0.0778 in 1998 and progressively increasing over the subsequent years to $1.22 in 2023, the company has not only maintained but also significantly increased its dividend payouts. This upward trend is indicative of a robust financial position and a strong commitment to returning value to shareholders. For instance, from 2010 to 2023, there was a consistent rise from $0.135 to $1.22, showing a compound annual growth rate (CAGR) indicative of a stable and growing company. This trend is favorable for long-term investors seeking reliable income streams.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases

Over the past 20 years, A.O. Smith has demonstrated considerable stock repurchasing activity, particularly concentrated within the last fifteen years. With shares decreasing from 178,266,000 in 2003 to 149,952,679 in 2023, there is an evident trend of reducing the share count. This nearly consistent reduction, marked by repurchasing years such as 2007 through 2023 with the exceptions of minor fluctuations, indicates a commitment to returning value to shareholders. An average annual repurchase rate of -0.5495 signifies a long-term strategy in decreasing share count, contributing positively to earnings per share (EPS) growth and potentially leading to stronger stockholder equity over time. This trend can be deemed significantly positive, showcasing a robust buyback policy.