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Is the Dividend Stock Nucor Corporation Worth Buying?

Ready to try your hand at steel stocks? Look no further than Nucor — or should you? Let's take a look.

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This story originally appeared on MarketBeat

When you're on the hunt for a stock that pays dividends, you may want to take a look at Nucor Corporation (NYSE: NUE)

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Let's dive into some details about Nucor Corporation and the pros and cons of the company and its sector to help you determine whether to purchase Nucor Corporation for your own portfolio.

About Nucor Corporation

Nucor Corporation, based in Charlotte, North Carolina, manufactures and sells steel and steel products, including the following:

  • Hot- and cold-rolled and galvanized sheet steel products
  • Plate steel products
  • Wide-flange beams
  • H-piling and sheet piling products
  • Bar steel products
  • Hollow steel tubing products
  • Electrical conduits
  • Racking, steel joists and joist girders
  • Steel decks
  • Fabricated concrete reinforcing steel products
  • Cold finished steel products
  • Steel fasteners
  • Metal building systems
  • Wire and wire mesh products

The company processes ferrous and nonferrous scrap metal and undergoes gas drilling operations and also produces direct reduced iron (DRI), ferrous and nonferrous metals, pig iron and hot briquetted iron. The company also sells ferrous scrap to electric arc furnace steel mills and foundries for manufacturing process and nonferrous scrap metal to aluminum can producers and other processors. 

In 1905, Ransom Olds, creator of the Oldsmobile, formed REO Motor Company which eventually became Nucor Corporation. In 1962, the company acquired Vulcraft, which produced steel joists and girders. The company’s first mini mill went into production in Darlington, South Carolina. In 1973, Nucor offered a five-cent cash dividend per share of the company’s common stock. 

In 1979, the company entered the cold-finish market in Norfolk, Nebraska and in 1989, thin-slab technology began at a new mini mill in Crawfordsville, Indiana. As technology continued to advance, Castrip technology also developed in 2002. The company acquired Fort Howard Steel, and Marion Steel in 2005 as well as the David J. Joseph Company in 2008.

The board of directors approved the repurchase of up to $3 billion of Nucor's outstanding common stock, which replaced the $2 billion repurchase program under which approximately $1.55 billion of the company's common stock had been repurchased since 2018. In other words, this means a company buys back its own shares from the marketplace in order to boost the value of a stock, typically doing so when the stock market is on an upswing.

In Q2 2022, Nucor Corporation recorded net earnings of $2.56 billion, or $9.67 per diluted share. Nucor reported consolidated net earnings of $2.10 billion, or $7.67 per diluted share, in comparison during the first quarter of 2022. It also increased from $1.51 billion, or $5.04 per diluted share, in the second quarter of 2021.

Nucor reported consolidated net earnings of $4.66 billion in the first six months of 2022, compared with the first six months' consolidated net earnings of $2.45 billion in 2021.

Pros and Cons of Buying Nucor Stock

Let's take a look at both the pros and cons of purchasing Nucor stock. Why might this stock be a welcome addition to your portfolio and why might you consider the other side of the coin as well and look in a different direction?

Pros

  • Dividend track record: With a dividend that has paid out over the past 49 years, Nucor is no stranger to treating its stockholders well. With a dividend yield of 1.56% and an annual dividend of $2, it's also important to note that Nucor's dividend still may not be the best compared to other competitors.
  • Consistency: Nucor has increased its base dividend for almost 50 years, a sign of a strong company with an excellent financial prognosis. Solid fundamentals and factor grades, strong quarter earnings and more continue to mark the company as a beloved choice among investors.
  • Commitment to green energy: Metal production, unfortunately, isn't great for the environment. However, Nucor has committed to a 35% combined reduction in steel mill scope 1 and scope 2 GHG intensity by 2030 in order to make an impact. In addition, it has been a leader in recycling scrap metal. This can increase its ESG appeal for investors.

Cons

  • Not the best dividend steel stock: Nucor pays an annual dividend of $2 per share and has a dividend yield of 1.6%, but it doesn't offer the highest dividend in the sector. Its competitor, Steel Dynamics, pays an annual dividend of $1.36 per share and has a dividend yield of 1.9%. Nucor pays out 7.2% of its earnings in the form of a dividend. Steel Dynamics (NASDAQ: STLD) pays out 6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Steel Dynamics is clearly the better dividend stock, given its higher yield and lower payout ratio. 
  • Downturn in steel stocks: While steel stocks zipped upward in 2021 due to demand, Industrial activity and restocking the supply chains, as well as the passage of the 2021 Infrastructure Bill to improve U.S. transportation systems. This year, however, steel demand, and therefore, stocks, have gone down due to inflation and analyst downgrades after peak highs in April. 
  • Forecasted decline in earnings: When analysts take a look at forecasts for Nucor Corporation, many forecast the stock to decline over the next few years. The 12-month price forecasts for Nucor Corp have a median target of 121 and range from 180 to 101.

Does Nucor Offer Dividend Potential?

Nucor reports ongoing good dividend news. It continues to increase its base dividend and the repurchase program wasn't accidental, even though it occurred last year. However, it's really important to remember that the steel industry's success is heavily intertwined with how the economy does. Nucor's continued profitability in its segment can only do well as long as there is high demand in nonresidential construction markets and other segments of the market.

It's best to consider your overall portfolio and how Nucor can fit into it. Will it help your personal short- and long-term goals? 

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