Dividend Aristocrats In Focus: Nucor Company

Up to date on March twentieth, 2024 by Bob Ciura

Nucor Company (NUE) is the biggest metal producer in North America. Regardless of working within the notoriously risky uncooked supplies sector, Nucor can be a remarkably constant dividend progress inventory. The corporate is within the S&P 500 Index and has elevated its annual dividend for over 50 consecutive years, which qualifies it to be a member of the Dividend Aristocrats checklist.

The Dividend Aristocrats have lengthy histories of elevating their dividends annually, even throughout recessions, which makes them comparatively uncommon finds inside the broader S&P 500. With this in thoughts, we created a listing of all 68 Dividend Aristocrats, together with vital monetary metrics like price-to-earnings ratios and dividend yields.

You may obtain an Excel spreadsheet with the total checklist of Dividend Aristocrats by clicking on the hyperlink under:

Disclaimer: Positive Dividend is just not affiliated with S&P World in any approach. S&P World owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet is predicated on Positive Dividend’s personal evaluate, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person traders higher perceive this ETF and the index upon which it’s primarily based. Not one of the info on this article or spreadsheet is official knowledge from S&P World. Seek the advice of S&P World for official info.

Nucor’s dividend consistency permits it to face out in its business. Metal is a very tough business because of the cyclical nature of the enterprise mannequin, which makes Nucor’s streak of annual dividend will increase much more spectacular.

This text will analyze Nucor’s enterprise mannequin, progress prospects, and valuation to find out whether or not the inventory is a purchase proper now.

Enterprise Overview

Nucor is the biggest metal producer in North America after many years of progress. The corporate is headquartered in Charlotte, North Carolina, and has a market capitalization of $39.5 billion.

Nucor was not all the time a frontrunner within the metal manufacturing business. The corporate has an extended and convoluted company historical past that may be traced again to the corporate’s founder, Ransom E. Olds (the creator of the Oldsmobile vehicle). Olds left his personal automotive firm over a disagreement with shareholders to kind the REO Motor Firm, which finally reworked into the Nuclear Company of America – Nucor’s first predecessor.

The corporate presently operates in three segments: Metal Mills (the biggest phase by income), Metal Merchandise, and Uncooked Supplies.

Supply: Investor presentation

Nucor manufactures all kinds of fabric sorts, together with sheet metal, metal bars, structural formations, metal plates, downstream merchandise, and uncooked supplies. Nearly all of the corporate’s manufacturing comes from a mixture of sheet and bar metal, as has been the case for a few years.

Nucor has been profitable over the long-term due to a concentrate on low-cost manufacturing. This permits it to keep up profitability throughout downturns, in addition to to provide important working leverage throughout higher occasions. As well as, it has labored to broaden its product choices to new markets, and preserve and develop its market management in current channels.

Development Prospects

The previous a number of years have been risky for Nucor and its rivals across the globe. Metal costs have been fluctuating wildly, pushed primarily by a provide glut popping out of worldwide markets, particularly China. Nonetheless, the business outlook has been fairly favorable these days.

Nucor Company disclosed its This fall 2023 earnings on January 30, 2024, demonstrating resilience amid difficult market situations. The corporate reported earnings of $3.16 per share for the quarter, a lower from the earlier 12 months’s $4.89 per share however surpassing the consensus estimate of $2.83.

Nucor’s web gross sales for the quarter amounted to $7.70 billion, marking an 11.7% lower year-over-year, but exceeding the consensus estimates. The decline in earnings in the course of the fourth quarter was primarily attributed to decrease costs, reflecting the risky metal market situations.

For the total 12 months 2023, Nucor reported web earnings of $4.52 billion or $18 per share, a lower from 2022’s web earnings of $7.61 billion or $28.79 per share. The whole web gross sales for the 12 months stood at $34.71 billion, displaying a 16% lower from the earlier 12 months.

Total, we count on Nucor’s earnings-per-share to say no by 0.9% per 12 months over the subsequent 5 years, as the corporate is coming off a multi-year interval of document earnings.

Aggressive Benefits & Recession Efficiency

Nucor is a producer and distributor of uncooked supplies and metal. Accordingly, the corporate is a ‘commodity enterprise’ – one during which the one largest differentiator between rivals is value.

Warren Buffett has the next to say about commodity companies:

“Shares of corporations promoting commodity-like merchandise ought to include a warning label: ‘Competitors could show hazardous to human wealth.’” – Warren Buffett

Definitely, commodity companies will not be probably the most defensive companies, due to their cyclicality. This may be seen by Nucor’s efficiency in the course of the 2007-2009 monetary disaster:

2007 adjusted earnings-per-share: $4.98
2008 adjusted earnings-per-share: $6.01
2009 adjusted earnings-per-share: web lack of ($0.94)
2010 adjusted earnings-per-share: $0.42
2011 adjusted earnings-per-share: $2.45

Nucor’s earnings-per-share have been decimated by the monetary disaster. The corporate is one among few Dividend Aristocrats whose earnings truly turned detrimental throughout this tumultuous time interval. Earnings have solely not too long ago caught as much as their pre-recession ranges, though Nucor has continued to steadily improve its dividend funds.

Valuation & Anticipated Returns

Nucor is predicted to report adjusted earnings-per-share of about $13.60 in fiscal 2024. That places the price-to-earnings ratio at ~14.1, which is above our truthful worth estimate of 12.0. For metal producers, we stay extra cautious than the overall market, partly because of the volatility of commodity costs.

We see truthful worth at 12 occasions earnings, which means Nucor is overvalued at the moment. If the P/E a number of contracts from 14.1 to 12, it could cut back annual returns by -3.2% over the subsequent 5 years.

The present yield is 1.1%, and we count on EPS to say no by 0.9% annually over the subsequent 5 years. We see detrimental complete annual returns of -3% within the subsequent 5 years.

Nucor has a extremely spectacular dividend historical past. It has elevated its dividend for 51 consecutive years. It has paid over 200 consecutive quarterly dividends. That mentioned, the speed of dividend progress has lagged common over the past decade, with most annual will increase within the low single-digits on a proportion foundation.

Ultimate Ideas

Nucor’s standing as a Dividend Aristocrat and, following its most up-to-date dividend improve as a Dividend King, helps it to face out among the many extremely risky supplies sector. There are a handful of uncooked supplies companies which have multi-decade observe data of compounding their adjusted earnings-per-share.

Regardless of Nucor that includes an extended historical past of annual dividend will increase and having a powerful business place and a wholesome stability sheet, Nucor now has a decrease dividend yield than the S&P 500 Index common as a consequence of its rising share value lately.

The share value rally has additionally elevated Nucor’s valuation, and we now see the inventory as considerably overvalued. Total, the inventory has a promote advice on the present value.

Moreover, the next Positive Dividend databases comprise probably the most dependable dividend growers in our funding universe:

For those who’re in search of shares with distinctive dividend traits, contemplate the next Positive Dividend databases: