Up to date on April nineteenth, 2024 by Bob Ciura
Yearly, we individually overview all of the Dividend Aristocrats. It is because we view them as significantly interesting shares for long-term dividend progress traders.
The Dividend Aristocrats are a choose group of shares within the S&P 500, with 25+ years of consecutive dividend will increase.
You possibly can see a full downloadable spreadsheet of all 68 Dividend Aristocrats, together with a number of essential monetary metrics corresponding to price-to-earnings ratios, by clicking on the hyperlink under:
Disclaimer: Certain Dividend will not be 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 relies on Certain 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 traders higher perceive this ETF and the index upon which it’s based mostly. Not one of the data on this article or spreadsheet is official information from S&P International. Seek the advice of S&P International for official data.
The subsequent Dividend Aristocrat in our 2024 sequence is A.O. Smith (AOS). A.O. Smith has elevated its dividend for 30 consecutive years.
This text will focus on A.O. Smith’s enterprise mannequin, progress prospects, and valuation.
Enterprise Overview
A.O. Smith is a number one producer of residential and industrial water heaters, boilers and water therapy merchandise. A.O. Smith generates two-thirds of its gross sales in North America, and many of the relaxation in China.
A.O. Smith was based in 1874 and is headquartered in Milwaukee, WI. The corporate generates annual gross sales above $9 billion.
Supply: Investor Presentation
A.O. Smith reported its fourth-quarter and full-year earnings outcomes on January thirtieth. The corporate generated income of $990 million throughout the quarter, which represents a rise of 6% in comparison with the prior yr’s quarter.
A.O. Smith’s income have been up by 7% in North America, whereas revenues noticed a smaller enhance in the remainder of the world.
Earnings-per-share of $0.97 throughout the fourth quarter rose 13% on a year-over-year foundation. This was due to greater income, margin enlargement, and share repurchases that decreased the share depend.
A.O. Smith has introduced its steerage for 2024. The corporate is forecasting earnings-per-share in a variety of $3.90 to $4.15, which displays that administration expects earnings-per-share to develop meaningfully this yr.
On the midpoint of the steerage vary, earnings-per-share can be up 6% versus 2023. A.O. Smith is forecasting that income will enhance by 3% to five% this yr.
Progress Prospects
A.O. Smith’s progress catalysts within the U.S. embody continued financial progress and rising housing costs. As a producer of water heating, water therapy, and air purification merchandise, the corporate is reliant on a financially wholesome shopper and housing market.
When house costs are rising and unemployment is low, shoppers with disposable revenue are way more keen to put money into upgrades like new water heaters.
The corporate has loved constant progress within the home market all through many of the final decade.
Going ahead, rising markets corresponding to China are set to drive A.O. Smith’s progress.
Supply: Investor Presentation
China’s large inhabitants, its sturdy GDP progress, and its booming of its center class are main tailwinds on this essential market. As well as, due to the extreme air pollution of the nation, the demand for air purifiers ought to stay sturdy as properly.
We count on A.O. Smith to develop earnings-per-share at a price of 6% per yr by way of 2029. We consider the corporate ought to have the ability to obtain no less than this degree of progress attributable to natural income progress and share repurchases, with potential extra acquisitions including additional progress.
Aggressive Benefits & Recession Efficiency
A.O. Smith’s sturdy progress is because of its aggressive benefits, primarily its high market share. A.O. Smith has the #1 market share in U.S. water heaters. It holds over 30% home residential share and over 40% of the industrial market share.
Possessing the highest {industry} place offers A.O. Smith pricing energy and excessive margins. In flip, this offers the corporate the power to generate lots of money stream, which allows it to put money into new product innovation.
One potential danger for A.O. Smith is a recession. As a producer, the corporate is carefully tied to the well being of the general financial system. It isn’t a extremely recession-resistant enterprise mannequin.
Earnings-per-share throughout the Nice Recession are under:
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 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.
General, the corporate carried out exceptionally properly, because it was nonetheless in a position to develop earnings over the course of the recession.
Valuation & Anticipated Returns
Based mostly on the present share value of ~$86 and the midpoint of 2024 EPS steerage of $4.03, A.O. Smith shares presently commerce for a price-to-earnings ratio of 21.3. We consider a price-to-earnings a number of goal of 19 is an applicable honest worth estimate for AOS inventory.
Consequently, A.O. Smith appears overvalued proper now. If the P/E a number of have been to say no to the honest worth estimate of 19, it might scale back annual returns by 2.3% over the following 5 years.
Shareholder returns will even be boosted by earnings progress and dividends, which collectively add as much as 7.5% annualized returns. In abstract, complete returns are anticipated to be 5.5% per yr over the following 5 years, since valuation a number of compression is predicted to barely offset the anticipated earnings-per-share progress and the dividend.
Remaining Ideas
A.O. Smith is an industry-leading firm. It has the highest model in its class, with compelling future progress potential. It has such a dominant market share of its {industry} that the corporate can 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 on the low aspect, the corporate’s dividend progress tempo and monitor file is spectacular.
Nonetheless, the inventory valuation stays barely elevated. Consequently, we view the inventory as comparatively unattractive to buy. Consequently, we price AOS inventory a maintain for now.
Moreover, the next Certain Dividend databases comprise essentially the most dependable dividend growers in our funding universe:
In case you’re searching for shares with distinctive dividend traits, contemplate the next Certain Dividend databases:
The foremost home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month:
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