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A. O. Smith: A High-Growth Dividend Aristocrat

Apr. 04, 2022 3:44 AM ETA. O. Smith Corporation (AOS)17 Comments


  • A. O. Smith is one of America's largest producers and sellers of boilers and related home & construction products.
  • The company has a conservative business model, very high dividend growth backed by solid financials, and one of the healthiest balance sheets on the market.
  • Its valuation and yield have gotten more attractive after the recent sell-off, making (new) stock purchases attractive.

Wachsenden Unternehmenswachstum Erfolg erhöhen-up Konzept. Bewaldeten Cube Block auf weißem Hintergrund mit Wort Wachstum und textfreiraum für Ihren text

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The market this year is wild. Volatility is back, high-growth stocks are in a bad place and economic growth expectations and consumer sentiment are plummeting. It's a truly tough environment for traders. For long-term investors who stick to their

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Comments (17)

By_Endurance_We_Conquer profile picture
AOS popped up in my screener due to the >2% now.

Nice to see that Leo published an article already.

What I also find very interesting: A.O.Smith has !! NO !! credit rating by Moody´s or S&P.


I guess because AOS sees no necessity to pay up for that as there is more cash on hand than debt?! And that as long as I have AOS on my WTB list.


+ EPS & FCF payout ratios are low
+ dominant market position
+ most reliable dividend payer & buyback program in place
+ reliable sales growth
+ high ROE & ROIC
+ nice margins
+ more cash than debt

And right now the valuation is tempting.

Thanks Leo for another most interesting deep dive!
Leo Nelissen profile picture
@By_Endurance_We_Conquer Thank you for a great comment! Nice summary of a great company! Surely one of the best buys in the industry right now.
EliasMouawad profile picture
Nice article. Your portfolio is heavily concentrated in industrial and oil stocks. Why don't you consider SPG and STOR to diversify ?
Leo Nelissen profile picture
@EliasMouawad I don’t like SPG. I prefer lower yield REITs with more growth
Water heater market will grow about the rate of GDP but water treatment will grow quite nicely and margins there will follow suit. AOS has been hurt by a slowdown in Chinese construction and supply strain constraints in the US housing market combined with massive increases in metal input costs. That being said, they own 50% of a steady, stable market and have been able to raise prices significantly. Investors can expect 300-400M returned to shareholders and ~200M invested in the business and acquisitions. Slow, steady, solid returns from here
Ao smith is restricted from manufacturing single speed 1-phase motors by new dept of energy (federal) law. Wondering how this will effect sales moving forward as they are a huge supplier of motors to the pool industry.
kurioz profile picture
"A. O. Smith: A High-Growth Dividend Aristocrat'

Very catchy title, who would not like a high growth dividend aristocrat?

Let's see, 5y return AOS 6.5% vs S&P 15.6%, PEG from finviz in red 2.73, PE 22. Dividend? Yield is below 2%, rather insignificant.
So, it looks like another fluffy, wishful thinking article that contradicts basic, readily available facts and data about the stock. It is sad how badly SA needs quality control.


jointheDivytrain profile picture
@kurioz AOS is a good stock but like you're saying the price is not a good buy at the moment.
@kurioz Maybe those "readily available facts" are not good enough to make a call? If they are, a seven year old kid should be able to achieve at least average returns in the stock market picking stocks.
JCG Ruijter profile picture
Long AOS. Jack from the Netherlands.
Leo Nelissen profile picture
@JCG Ruijter Always nice to see fellow Dutchmen in the comment section! Good luck Jack
"11.9x and 11.2x 2022 and 2023 EBITDA expectations, respectively. That's a good valuation as investors have consistently valued the company at roughly 15x EBITDA."
Sorry, but it is not...That older valuation was based on earnings / dividend growth in double digits, while now we already have single digits, and less and less growth every year, so absolutely normal that ratio.
Agree with the good quality and the hold.
Good luck!
Leo Nelissen profile picture
@antoncretu You're partially right. However, growth is set to bounce back rather quickly. Supply chains made higher growth impossible. Thank you for your kind comment!
@antoncretu There was a period of underconstruction in the US housing for some years. Currently you see an uptick in housing market again.
So was the slow down that you mentioned a new trend or a cyclical break and higher growths will follow?
Leo Nelissen profile picture
@Long_investing_horizon It's mainly due to rates right now. Demand is getting punished by lower affordability. Once that blows over, it's off to the races again.
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