Dividend Investing: A Steel Company With A Quality Dividend

Steel companies are typically known as great investments and offer very little in the way of current income. Investors are normally attracted to the industry during economic booms. Steel companies perform at their best when construction is high and demand is great for their products. There is one large cap steel player that is offering a good yield and trades at a pretty reasonable valuation that investors would like.

Nucor Company History

Nucor (NUE) is the largest U.S. steel manufacturer by production, and its mills are among the most modern and efficient in the country. The company operates 23 scrap-based steel minimills in North America and is the largest scrap processor. Nucor has 20,500 employees and a market cap of $14.6 billion dollars.

Nucor is one of those companies that stands to benefit from any construction that takes place internationally. Nucor had $15.8 billion dollars in sales last year, which was very positive for the company after a dreadful sales number in 2009. Nucor’s revenue plummeted from $23 billion dollars to just $11 billion dollars when the economic crisis hit.

steel stock dividend investingThe company specializes in creating just about any steel product including:

  • Flat rolled steel
  • Steel sheets
  • Steel bars
  • Steel beams
  • Steel plates
  • Steel materials
  • Steel joists
  • Steel girders
  • Steel decks

Nucor’s Stock

Nucor trades at 16.7 times this year’s earnings and 12 times next year’s earnings. The stock trades at less than 1 times sales and 16 times cash flow. The company generates substantial cash flows of $2.5 billion, $1.1 billion and $850 millions dollars the past three years.

Revenue has grown at 4.5% over the past 5 years and 13.2% over the past 10 years. The current year’s growth is at an impressive 41.6%. Gross margins and net margins are low at 5.3% and 0.8% which demonstrates that pricing power has not yet returned fo the company. Nucor has not been able to pass on the effects of higher commodity prices to its customers. The negative growth in operating income, net income, and earnings per share over the past five years is concerning.

Nucor is one of my favorite dividend stocks. The company has increased its dividend for 38 consecutive years, a remarkable streak for a company that derives its income from the cyclical industrial industry. Dividends have grown 36.9% over the past five years. Nucor has a dividend yield of 3.2% which is great for a steel stock. The current dividend of $1.45 represents an effective payout rate of 54%.

Nucor is one of the strongest financial companies in an industry that has a lot of companies with crummy balance sheets. The company is a good dividend stock that should thrive during an economic recovery.

Comments

  1. I have had NUE on my watchlist for some time. They are a highly cyclical company, so I’m very considerate in finding the right time to buy in.

  2. avatar optionsdude says:

    I own AK Steel (AKS). They have a smaller dividend, but I sell covered calls each month on my holdings. By selling the May 16 strike calls tomorrow at 54 cents, I can get a yield of over 3% for the month. Getting called out at 16 would more than double my return. But if it doesn’t, that is OK because I will just do it again the month after that.

  3. avatar Contender says:

    As of 4/22/2011, NUE’s dividend yield is 3.14%, and P/E is 110 – which is a bit high for my blood.
    Thanks for the great article, it sounds like an emerging/growing company to look at in the future.

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