Dividend Growth Stock Overview: A. O. Smith Corporation

Photo: A. O. Smith Investor Relations Webpage

About A. O. Smith Corporation

A. O. Smith Corporation is a leading manufacturer of water heaters and boilers for residential and commercial markets. The company is based in Milwaukee, Wisconsin, has 11,400 employees, including 6,000 in China. Products include water heaters ranging from 2.5 – 12,500 gallon capacity, boilers with energy outputs from 40,000 to 2.5 million BTUs, expansion tanks, commercial solar water heating systems, and related products and parts.  A. O. Smith is the largest manufacturer of water heaters in North America.

The company has two business segments, divided by geography: North America and Rest of World.  The North America segment provides roughly two-thirds of sales and earnings.  Roughly two-thirds of North American revenues come from the sales of residential water heaters.

The Rest of World Segment provides the rest of A. O. Smith’s sales and earnings.  The segment has 7 manufacturing plants in 4 countries, including China.

A. O. Smith Corporation’s heritage goes back to 1874 when Charles Jeremiah Smith founded a “hardware specialties” company in Milwaukee, Wisconsin. The company made metal parts for baby carriages, expanding in 1889 to making parts for bicycles. By 1895, Charles J. Smith – Machinist, was the largest manufacturer of bicycle frames in the United States.  Soon thereafter, C. J. Smith’s three sons joined the business and the name was changed to C. J. Smith and Sons.  One of those sons, Arthur Oliver Smith, developed a lightweight steel car frame in 1899 to meet the demand of the new automobile industry.  The steel car frame was sold to many of the bourgeoning car manufacturers, including Cadillac, Oldsmobile and Ford.

The company continued to advance engineering techniques and, under Arthur O. Smith’s son, Lloyd Raymond Smith, the company developed a technique of fusing glass to steel.  This development led to glass-lined beer kegs, large glass-lined brewery tanks and glass lining for a residential water heater tank.

This combination of auto frame manufacturing and the manufacturing of glass and steel fused tanks helped A. O. Smith expand rapidly.  By 1910, the company was the largest auto frame manufacturer in North America.  Beginning in 1925, the company entered the pressure vessel business and in 1927 entered the line pipe business to support the quickly expanding natural gas and transcontinental oil pipeline industries.

The company continued to innovate through the first half of the 20th century.  In the 1930s, the company introduced the first large, single-piece glass-lined brewery tank and began producing glass-lined residential water heaters.  In 1940, the company expanded into the manufacturing of electric motors – a business line that it would remain in until 2013 – by acquiring Sawyer Electric of Los Angeles.

Following World War II, the company continued to expand through acquisitions and by building manufacturing plants outside the United States, first to Canada in 1961, to Mexico in 1984 and eventually to China in 1995.

In the late 1990s and early part of the 21st century, A. O. Smith began to focus its business lines to water heaters, water treatment and pressure vessels.  It exited the automobile industry in 1997 by selling its business line to Tower Automotive.  The acquisition of State Industries, Inc. in 2001 doubled the size of A. O. Smith’s water heater business and in 2009 it entered the water purification business by creating the A. O. Smith (Shanghai) Water Treatment Products Co. Ltd.  A. O. Smith expanded manufacturing to India in 2010 to take advantage of a rapidly growing middle class population.  In 2013, it sold its electric motor business to Regal Beloit Corporation of Wisconsin.

In July 2017, A. O. Smith joined the S&P 500 index, replacing Bed, Bath and Beyond.

The company is a member of the S&P 500 index and will join the S&P 500 Dividend Aristocrats index at the beginning of 2018 when it completes 25 consecutive years of dividend growth.  The company trades under the ticker symbol AOS.   The Smith family controls the company through ownership of Class A stock, which enables them to elect two-thirds of the board of directors.

A. O. Smith Corporation’s Dividend and Stock Split History

A. O. Smith has paid dividends since at least 1984 and has grown its dividend since 1993. The company announces its annual dividend increase in January, with the stock going ex-dividend later that month.

A. O. Smith has compounded its payout at an average rate of 25.5% over the last 5 years and 17.0% over the last 10 years.

Since beginning its record of dividend growth in 1993, A. O. Smith has split its stock 5 times.  The most recent stock split was a 2-for-1 split in October 2016.  Prior to that, A. O. Smith split its stock 2-for-1 in June 1993, 3-for-2 in July 1998 and October 2010, and 2-for-1 in April 2013.  For each share of stock you owned before the stock split in 1993, you would now have 18 shares of A. O. Smith stock.

A. O. Smith’s Direct Purchase and Dividend Reinvestment Plans

A. O. Smith has direct purchase and dividend reinvestment plans, but you must already be a shareholder to participate. The plans are very favorable to investors, as A. O. Smith covers all the fees when you buy shares, whether through direct purchase or dividend reinvestment. For direct purchases, the minimum is $25 for purchases by check or automatic debit.

When you sell your stock, you’ll pay a sales fee of $10, $25 or $30, depending on the type of sell order you request. You’ll also pay a commission of 10 cents per share. It costs an additional $5 to have the sales proceeds directly deposited to your account.

Helpful Links

A. O. Smith Corporation’s Investor Relations Website

Current quote and financial summary for A. O. Smith Corporation (finviz.com)

Information on the direct purchase and dividend reinvestment plans for AOS

Want to find out about more great dividend growth stocks?

Check out the list of current S&P Dividend Aristocrats.

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