A.O. Smith Corp. (NYSE:AOS): A Strong Candidate for a Reliable Dividend Portfolio

When building a portfolio for income generation, a systematic approach to stock selection is important. One effective method involves using a predefined filter to identify companies that not only offer an appealing dividend but also show the financial capacity to maintain and possibly increase those payments over time. A "Best Dividend" filter, like the one mentioned here, usually selects for stocks with a high ChartMill Dividend Rating, making sure a full review of yield, growth, and sustainability is done. Importantly, this filter also requires a minimum level of profitability and financial soundness, as a company must be fundamentally healthy to dependably fund its dividend obligations through different economic periods. This process helps investors consider more than a high yield by itself and concentrate on the quality and dependability of the income stream.

Dividend Profile

For dividend investors, the payout characteristics of A. O. Smith Corp. (NYSE:AOS) are noteworthy. The company has built a history that matches the main principles of a good dividend strategy, which values dependability and growth over the size of the yield alone.

• Yield and Growth: AOS provides a dividend yield of 2.20%, which is strong within its industry and similar to the wider S&P 500 average. More significantly, the company has shown a dedication to returning value to shareholders by increasing its dividend at an average yearly rate of 7.65% over recent years. This steady growth is a main sign of a healthy dividend policy that can help an investor's income keep up with inflation over time.
• Proven Track Record: AOS has paid and, importantly, has not cut its dividend for at least ten years. This long history of consistent payments offers a degree of assurance for income-focused investors, as it points to a corporate culture that values shareholder returns.
• Sustainability: The sustainability of a dividend is critical, and here AOS displays clear capacity. The company uses only 36.68% of its earnings on dividend payments, which is a low payout ratio. This shows that the dividend is well-protected and leaves plenty of room for the company to reinvest in its business or handle economic slowdowns without putting the payout at risk.

Profitability and Financial Health

The "Best Dividend" filter includes profitability and health ratings for a key purpose: a company must be profitable and financially secure to keep its dividend. AOS performs well in these areas, giving a firm base for its dividend payments. The company's very good ChartMill Profitability Rating of 9 is supported by high returns on invested capital and solid margins. These good profitability measures mean the company is very effective at creating earnings from its assets, which directly pays for the dividend and its future increases.

In addition, AOS has a strong ChartMill Health Rating of 8. Its financial stability is very good, with a very low debt-to-free-cash-flow ratio and a high Altman-Z score, showing no short-term danger of financial trouble. While its immediate liquidity ratios are more average, this is viewed alongside its better overall stability and profitability. This financial soundness is necessary for a dividend stock, as it makes sure the company can easily manage its debt and continue its shareholder payments even in a difficult economic climate.

Valuation and Growth Considerations

While the main focus for a dividend investor is the income stream, knowing the company's valuation and growth potential gives useful background. AOS trades at a Price-to-Earnings ratio that is similar to its industry group but seems more appealing when measured against the wider S&P 500. The company's recent growth has been slow, with small decreases in earnings and revenue over the last year. However, analysts forecast a return to slight growth in the next few years. For a dividend investor, the current valuation and steady, if not remarkable, growth view could be an acceptable exchange for the stock's high-quality dividend characteristics and very good financial health.

A complete summary of these fundamental factors is available in the detailed ChartMill Fundamental Analysis Report for AOS.

Conclusion

A. O. Smith Corp. makes a strong case for dividend investors looking for a mix of dependable income, steady growth, and financial security. The company's good dividend rating is supported by a ten-year history, a maintainable payout ratio, and a respectable growth rate. Importantly, this dividend is held up by high-level profitability and a very sound balance sheet, which are the foundations of a lasting income investment. While its growth may not be rapid, its steadiness and financial capacity make it a notable candidate for a diversified dividend portfolio.

The "Best Dividend" filter that found AOS can be a useful instrument for finding other good income-generating stocks. You can review the current results and modify the settings to fit your specific investment needs by visiting the live screen on ChartMill.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. All investment decisions should be based on your own research, financial situation, and risk tolerance.