For investors looking for steady income, a methodical selection process can find companies that provide more than a high stated yield. A typical approach uses filters for stocks with a good total dividend profile, confirming the payment is lasting and supported by a sound, profitable company. This frequently involves finding a high ChartMill Dividend Rating, which combines elements like yield, increase, past performance, and payment durability, while also setting basic levels for profit and financial soundness to sidestep misleading opportunities.
One company that appears from this method is SMITH (A.O.) CORP (NYSE:AOS), a top producer of water heating and treatment products. The company's basic financial picture indicates it deserves more examination by investors concentrating on dividends.
Dividend Profile: Dependability and Increase
The central attraction of A.O. Smith for income investors is its balanced dividend traits, which match the selection goals intended to locate lasting payers.
- Yield and Comparison: The stock provides a dividend yield of 1.84%. Although not very high alone, perspective matters. This yield is almost three times the average of other companies in its building products sector (0.63%) and matches the wider S&P 500 average.
- History of Increase: The company has built a dependable record, having paid and, significantly, raised its dividend for at least ten straight years. The dividend has risen at a good yearly rate of about 7.1% over the last five years, showing a dedication to giving more capital back to shareholders over time.
- Lasting Payment: Durability is important, and A.O. Smith performs well here. The company uses only about 36% of its profits to pay the dividend, a comfortably low payout ratio that leaves plenty of room for putting money back into the business, handling debt, and managing economic slowdowns. Also, its profit increase has in the past been faster than its dividend increase, supporting the durability of the present policy.
These elements together lead to the stock's solid ChartMill Dividend Rating of 8 out of 10. You can see the whole, itemized explanation of this rating in the fundamental analysis report for AOS.
Supporting Basics: Profit and Financial Soundness
A good dividend is only as reliable as the company that provides it. The selection process's need for acceptable profit and soundness is meant to confirm this, and A.O. Smith meets it.
Profit Strength: The company receives a high ChartMill Profitability Rating of 8. Its return figures are especially notable, with a Return on Invested Capital (ROIC) of 24.36% and a Return on Equity (ROE) of 29.40%, each placed in the best group of its industry. Margins are also good and have displayed progress, with an operating margin of 19.02%. This high degree of profit supplies the basic engine that supports both business expansion and the dividend.
Financial Soundness Points: The company's ChartMill Health Rating is a 5, showing a varied but generally acceptable situation. On the good side, A.O. Smith has a very strong position regarding debt. Its debt amounts are very small, with a low Debt-to-Equity ratio of 0.06, and it could repay all its debt with under a year's free cash flow. This small debt load is a major advantage. The main point of attention relates to liquidity; its Quick Ratio of 0.94 is less than the industry average, indicating a more constrained position in meeting immediate liabilities without selling stock. However, its firm profit and small debt load typically lessen this worry for long-term dividend durability.
Valuation and Increase Background
From a valuation view, A.O. Smith trades at a P/E ratio near 20.8, which is somewhat high on a basic level but seems more fair compared to both its own industry and the wider market. The company's very good profit can support a higher valuation. Increase has been consistent, with a strong past EPS increase rate, although analysts expect a slowing in both sales and profit increase in the next few years. For a dividend investor, the focus is often stability and dependability over fast increase, a profile that A.O. Smith mostly matches.
Conclusion
For investors using a filter that emphasizes lasting dividend traits supported by a stable company, A.O. Smith offers a strong argument. It joins a reasonable and increasing yield with an excellent history of raises, all supported by outstanding profit and a very strong balance sheet with minimal debt. While its present valuation is not low and near-term increase projections are temperate, the company's central financial strengths support the argument for a dependable income source.
This review of A.O. Smith came from a methodical filter for good dividend payers. If you want to investigate other companies that meet similar standards for good dividends, profit, and financial soundness, you can see the full filter findings here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. The review uses data and ratings from ChartMill, which can change. Investors should perform their own research and think about their personal financial situation and risk tolerance before making any investment choices.
