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A. O. Smith's (AOS) Board Approves 22% Hike in Dividend Rate

Zacks Equity Research
Updated

A. O. Smith Corporation AOS has announced that it is rewarding shareholders in the form of hike in the quarterly dividend rate. This increment marks the company’s second hike in quarterly dividend rate in 2018; the former being declared in January.

We believe that such shareholder-friendly policies of the company reflect a strong cash position.

Inside the Headlines

As revealed, A. O. Smith’s board of directors approved 22% or 4 cents per share hike in the quarterly dividend rate, which now moved from 18 cents to 22 cents. On an annualized basis, the dividend increased to 88 cents from 72 cents per share.

A. O. Smith will pay the revised dividend on Nov 15, 2018, to shareholders of record as of Oct 31.

Sound Shareholder-Friendly Policies

A. O. Smith firmly believes in rewarding shareholders handsomely through dividend payments and share buybacks. In the last three years (2015-2017), the company’s cash dividend paid per share increased from 38 cents in 2015 to 56 cents in 2017. Further, during these three years, it repurchased shares worth $402 million.

In the first half of 2018, the company paid a cash dividend of 36 cents per share or approximately $61.8 million cash to its shareholders. In January 2018, it raised the quarterly dividend rate by 29% to 18 cents.    

Moreover, the company used $69.7 million for repurchasing its shares in the first two quarters of 2018. Exiting the period, the company had 1.3 million share buyback authorization remaining.

It’s worth mentioning that a new $2.5-million buyback program was approved by the company’s board of directors in July. For 2018, A. O. Smith anticipates repurchasing approximately $135 million worth of shares.

We believe that impressive financial performance in the quarters ahead is likely to enable the company to continue rewarding its shareholders handsomely through dividend increments.

Earnings Projections and Price Performance of A. O. Smith

A. O. Smith, with approximately $8.5-billion market capitalization, currently carries a Zacks Rank #3 (Hold). Growing demand for products, as well as healthy liquidity position, works in the company’s favor. However, forex woes and adverse impacts of rising costs remain headwinds.

For 2018, the company anticipates adjusted earnings per share of $2.59-$2.63, higher than $2.55-$2.61 stated earlier. The mid-point of the revised projection reflects year-over-year growth of 20%. Pricing actions taken to curb impacts of higher steel prices and inflation in other costs will be a boon.

In the past 60 days, the Zacks Consensus Estimate for earnings has remained stable at $2.61 for 2018 and $2.92 for 2019. These estimates reflect year-over-year growth of 20.3% for 2018 and 11.8% for 2019.

A. O. Smith Corporation Price and Consensus
 

A. O. Smith Corporation Price and Consensus | A. O. Smith Corporation Quote

In the past three months, the company’s share price has declined 15.3%, underperforming 5.7% growth recorded by the industry.





Key Picks

Some better-ranked stocks in the industry are Enersys ENS, Eaton Corporation plc ETN and Ideal Power Inc. IPWR. While Enersys sports a Zacks Rank #1 (Strong Buy), both Eaton and Ideal Power carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, bottom-line estimates for Eaton and Ideal Power improved for the current year and remained stable for Enersys. Further, the average positive earnings surprise for the last four quarters was 2.86% for Enersys, 2.87% for Eaton and 18.09% for Ideal Power.

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Ideal Power Inc. (IPWR) : Free Stock Analysis Report
 
A. O. Smith Corporation (AOS) : Free Stock Analysis Report
 
Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
 
Enersys (ENS) : Free Stock Analysis Report
 
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