Watsco Hikes Dividend 10% to $13.20, Q4 Cash Flow Hits $400M
In Q4 Watsco lifted gross margin 40 basis points to 27.1%, generated record cash flow of $400 million and completed a $500 million inventory reduction while staying debt-free. It boosted its annual dividend 10% to $13.20, grew e-commerce to 35% of sales and targets a 30% gross margin over time.
1. Q4 Financial Performance
Watsco achieved double-digit pricing gains on A2L refrigerant products, lifting Q4 gross margin by 40 basis points to 27.1% and generating record cash flow of $400 million while reducing SG&A by 2%. Full-year unit volumes fell 17% due to strong prior-year comparisons and the refrigerant transition.
2. Dividend and Margin Targets
The board approved a 10% annual dividend increase to $13.20 per share, marking 52 consecutive years of payouts, and reiterated its long-term gross margin goal of 30%, underpinned by pricing optimization, parts growth and technology initiatives.
3. Digital and Technology Investments
E-commerce sales comprised 35% of revenue and exceeded 60% in select markets, while the OnCall Air platform reached a $1.8 billion GMV run rate. Contractor engagement via the mobile app rose 15% to 73,000 users, and early AI projects aim to enhance customer experience and efficiency.
4. Inventory Reduction and Balance Sheet Strength
Watsco remained debt-free throughout 2025 after hitting a $500 million inventory reduction goal and ended Q4 with inventory representing 18%–19% of prior-year sales. Management set a “dream” target of five inventory turns, up from low threes during recent industry disruptions.