The board of Nucor Corporation (NYSE:NUE) has announced that it will pay a dividend of US$0.41 per share on the 10th of November. Including this payment, the dividend yield on the stock will be 1.5%, which is a modest boost for shareholders' returns.
Nucor's Payment Has Solid Earnings Coverage
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Nucor's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 66.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 9.9% by next year, which is in a pretty sustainable range.
Nucor Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from US$1.45 in 2011 to the most recent annual payment of US$1.62. This implies that the company grew its distributions at a yearly rate of about 1.1% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Nucor has grown earnings per share at 71% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
We Really Like Nucor's Dividend
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Nucor (of which 1 doesn't sit too well with us!) you should know about. We have also put together a list of global stocks with a solid dividend.
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What are the risks and opportunities for Nucor?
Price-To-Earnings ratio (5.9x) is below the US market (15.5x)
Earnings have grown 42.6% per year over the past 5 years
Earnings are forecast to decline by an average of 52.1% per year for the next 3 years
Significant insider selling over the past 3 months
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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