Vardah Gill
5 min read
A. O. Smith Corporation (NYSE:AOS) provides income investors with a mix of dividend growth, well-known brands, and access to the demand for replacing water heaters and water treatment products. Although its dividend is backed by a profitable business, the attractiveness of the stock will depend on whether future earnings can provide sufficient growth to make the investment worthwhile when compared with higher-yielding government bonds. For investors weighing income opportunities against valuation, our list of 10 Best 52-Week Low Dividend Stocks to Invest In offers a look at other dividend-paying companies that may be worth a closer look
The most recent figures released by the company for the second quarter of 2026 indicated that sales had reached about $1 billion, net earnings were $125 million, and diluted earnings per share (EPS) amounted to $0.91; adjusted EPS was $1.03. Sales in North America rose by 5%, a result of the Leonard Valve acquisition, higher boiler sales, and increased pricing. On the other hand, sales in the rest of the world declined by 19%, a sign of the ongoing weakness in China’s consumer appliance market.
This split in earnings matters for investors who receive dividends. Although North America is still the source of the company’s earnings, weaker demand in China and lower volumes of residential water heaters make it unreasonable to assume that the company will maintain consistently strong growth.
Photo by nathan dumlao on Unsplash
Dividend Growth Is the Stronger Part of the Investment Case
A. O. Smith Corporation (NYSE:AOS) has raised its dividend for over 30 consecutive years. After the increase made in October 2026, the quarterly payment reached $0.38 per share, which amounts to $1.52 per year. When the share price is about $59.44, the yield works out to around 2.56%. The yield is not very high, but the dividend seems reasonable. Due to the company’s solid dividend growth, it is added to our list of top income stocks. Check here.
Given the management’s revised guidance for diluted EPS in 2026 of $3.60 to $3.75, the company’s annual dividend would amount to about 39% to 42% of earnings. Therefore, there would still be room for reinvestment and for future dividend increases, on the condition that earnings remain steady. Cash flow provides additional support for the situation. Operating cash flow in the first half of 2026 amounted to $253.8 million, whereas capital expenditure was $20.5 million, which left a free cash flow of about $233.3 million.
