Nucor Corporation (NYSE:NUE) will increase its dividend on the 11th of February to US$0.50. Even though the dividend went up, the yield is still quite low at only 1.5%.
Nucor's Earnings Easily Cover the Distributions
If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Nucor was easily earning enough to 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 15.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 8.3%, which is in the range that makes us comfortable with the sustainability of the dividend.
Nucor Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was US$1.45 in 2011, and the most recent fiscal year payment was US$2.00. This implies that the company grew its distributions at a yearly rate of about 3.3% 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
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Nucor has impressed us by growing EPS at 81% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
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. 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.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Nucor that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
What are the risks and opportunities for Nucor?
Price-To-Earnings ratio (5.6x) is below the US market (15.6x)
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
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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.