Nucor Corporation (NUE): A Dividend Aristocrat Yielding 4.3%

Beyond international supply concerns, the automotive industry is one of the two largest markets for steel in the United States. Lighter-weight materials such as hard plastics and aluminum are increasingly posing as threats to steel because they help with fuel efficiency and can be cheaper to use.

Of course, near term demand trends can also be volatile in major end markets such as construction and energy. As you can hopefully tell by now, investing in the steel industry can be quite the rollercoaster ride and is not for the faint of heart.

Dividend Analysis

We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend. NUE’s long-term dividend and fundamental data charts can all be seen by clicking here.

Dividend Safety Score

Our Safety Score answers the question, “Is the current dividend payment safe?” We look at factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

Despite some of the drawbacks of the steel industry, NUE’s dividend appears to be quite secure and has a nice Safety Score of 74.

Over the last four quarters, NUE’s dividend has consumed 76% of its earnings and 26% of its free cash flow. As seen below, the company’s payout ratios have been volatile over the last decade but increased meaningfully from about 15% in 2005 to around 60% last fiscal year. NUE grew its dividend faster than its earnings over this period. For a cyclical company, its payout ratios are getting to be on the higher side of what we prefer, but we will see that it’s less of a concern with NUE’s business model, which generates reliable cash flow in most environments.

NUE EPS Payout Ratio

Source: Simply Safe Dividends

NUE FCF Payout Ratio

Source: Simply Safe Dividends

As we have noted, NUE is a cyclical business. We can see that the company’s sales and earnings fell more than 50% in fiscal year 2009 as global steel markets collapsed. They also rebounded strongly in 2010 and 2011, underscoring the violent swings the steel market can take.

NUE Sales Growth

Source: Simply Safe Dividends

Despite the swings in steel prices and demand, NUE’s low-cost operating model and variable cost structure has enabled it to respond extremely well to periods of low demand. As seen below, NUE has generated free cash flow in nine of its last 10 fiscal years.

Importantly, NUE’s annual dividend payments total $1.50 today. We can see that the company’s current dividend would be covered by the company’s free cash flow generation in each of the years during the financial crisis ($2.52 in 2009; $1.75 in 2010). While industry conditions could always surprise to the downside, NUE seems to be in good shape to keep paying its dividend under most worst-case scenarios for the steel industry.


Source: Nucor, Simply Safe Dividends