Nucor (NYSE:NUE) Is Increasing Its Dividend To US$0.50

Nucor Corporation (NYSE:NUE) has announced that it will be increasing its dividend on the 11th of February to US$0.50. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

View our latest analysis for Nucor

Nucor's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. However, Nucor's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 13.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 8.9%, which is in the range that makes us comfortable with the sustainability of the dividend.

Nucor Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the first annual payment was US$1.45, compared to the most recent full-year payment of US$2.00. This implies that the company grew its distributions at a yearly rate of about 3.3% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see Nucor has been growing its earnings per share at 80% a 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.

Nucor Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Nucor that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.