We recently published a list of 12 Best Industrial Dividend Stocks to Invest in Now. In this article, we are going to take a look at where A. O. Smith Corporation (NYSE:AOS) stands against other best industrial dividend stocks to invest in now.

Industrial stocks play a crucial role in economic growth, encompassing a wide range of businesses, from manufacturing to transportation. This sector often performs well during periods of economic expansion and stands to gain from higher government investment in infrastructure projects. Although the sector is diverse, companies within it exhibit common characteristics and are positioned to benefit from several overarching trends. These factors contribute to the view that industrials play a significant role in the equity portion of a well-diversified portfolio.

In recent years, the industrial economy has generally experienced improving demand trends, though certain areas, such as manufacturing automation, have shown signs of weakening. A report by Edward Jones suggested that while the recovery is expected to continue, several near-term uncertainties could impact the sector’s growth. These include a potential slowdown in economic expansion, ongoing geopolitical challenges, and declining business and consumer confidence.

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Additionally, the growing risk of a global trade war between the United States and key trading partners has introduced further uncertainty for the industrial sector. While the administration has announced tariffs on materials such as steel and aluminum, the full impact of these measures remains unclear. Further tariff actions are anticipated, with a likely focus on China and the European Union. In response, these regions are expected to retaliate through tariffs or other policy measures.

In 2024, the industrial sector delivered solid returns overall, though it slightly trailed the broader market in what was a strong year for stocks. A report by Fidelity Investments noted that industrials started the year on a strong footing, generally keeping pace with the broader market through April. However, the sector underperformed in May and June before rebounding in July, emerging as one of the market’s stronger segments. It largely maintained those relative gains through mid-December. This uneven performance reflected a balance between optimism surrounding a potential soft landing for the US economy and a surge in major construction projects, contrasted with concerns over weak manufacturing indicators and historically high stock valuations.

The Fidelity report also highlighted several key themes that could present investment opportunities in the coming year. One of the primary themes is the resurgence of manufacturing within the United States. Various factors are driving an unprecedented wave of reinvestment in domestic infrastructure, efforts to onshore supply chains to mitigate geopolitical risks, and increased investments in electrification and artificial intelligence development.

The cyclical nature of industrial stocks has contributed to strong performance over time. Over the past three years, the market’s Industrial Index has slightly outpaced the broader market, driven by solid growth across several key industries, including Aerospace & Defense, Building Products, Machinery, and Electrical Equipment. This year, as stocks have been in negative territory for a while now, the industrial sector has recorded a 0.74% decline, while the broader market has fallen by nearly 3%.

Our Methodology

For this article, we first scanned Insider Monkey’s database of over 1,000 hedge funds, as of the fourth quarter of 2024 and selected industrial companies across various segments within the industry, including manufacturing, construction, aerospace and defense, machinery and equipment, transportation and logistics, as well as utilities. From this pool of companies, we identified 12 dividend companies and ranked them in ascending order of the number of hedge funds having stakes in them at the end of Q4 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

A. O. Smith Corporation (NYSE:AOS)

Number of Hedge Fund Holders: 35

A. O. Smith Corporation (NYSE:AOS) is a Wisconsin-based manufacturing company that specializes in residential and commercial water heaters for its consumers. The company specializes in innovative technologies focused on energy efficiency, sustainability, and smart water management, addressing the rising demand for reliable and environmentally friendly water solutions. Its strong distribution network and dedication to research and development have reinforced its standing as a trusted leader in the water industry.

A. O. Smith Corporation (NYSE:AOS)  posted mixed financial results for the fourth quarter of 2024, with revenue reaching $912.4 million—an 8% decline from the previous year. After achieving three consecutive years of record sales, A. O. Smith saw a downturn in 2024, primarily due to a weaker economy in China that dampened consumer demand. In North America, water heater sales also softened in the latter half of the year. However, boiler sales in the region grew by 8%, supported by increased demand for high-efficiency commercial products.

Despite these challenges, A. O. Smith Corporation (NYSE:AOS) maintained a solid cash position in 2024. The company generated $581.8 million in operating cash flow, while free cash flow for the year totaled $473.8 million. It also returned $496 million to shareholders through dividends and share repurchases. As of December 31, 2024, the company held approximately $240 million in cash and cash equivalents. Its quarterly dividend comes in at $0.34 per share and has a dividend yield of 2.02%. The company has been making regular dividend payments for 85 years. Moreover, it has raised its payouts for 32 years in a row, which makes AOS one of the best industrial stocks that pay dividends.

Overall, AOS ranks 11th on our list of best industrial dividend stocks to invest in now. While we acknowledge the potential of AOS as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than AOS but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.

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Disclosure: None. This article is originally published at Insider Monkey.