Nucor: A Steal in Steel?

11/13/2015 7:00 am EST


Jimmy Mengel

Editor, Outsider Club

We're now recommending a steel stock as a great position for our dividend reinvestment portfolio, explains Jimmy Mengel, editor of The Crow's Nest.

Nucor Corporation (NUE) is now the largest steel company in the United States. It’s also the most valuable steel company, globally, by market cap.

Nucor is also among the top dividend-paying steel companies and has paid 170 consecutive cash dividends. This fact cannot be overstated in a cyclical industry like steel.

Most of this is simply due to the fact that steel has been hammered since China’s economy has slowed.

But here are a few reasons why Nucor can withstand this current downturn and emerge victorious once prices go back up:

  • Nucor is the only North American steel company to hold an investment-grade credit rating.
  • If steel prices manage to hold their ground in the coming months, Nucor’s earnings might be even better than the analysts’ average estimates.
  • Nucor’s healthy dividend yield of 3.48% is another attraction for value investors. Unlike some of its peers, Nucor can sustain the dividend payout even if steel market conditions turn worse from here.

Meanwhile, the housing and construction sector is the largest consumer of steel today and home construction recovered at a steady pace last year.

The automotive sector is the second-largest steel consumer and it is also showing significant promise.

In fact, for the first time since 2008, US auto sales surpassed 16 million units in 2014 and the rising trend in sales is expected to continue in 2015.

The auto industry in the Asian countries, particularly China and India, are also expected to flourish over the next five to seven years.

Finally, Nucor just announced a share buyback program of up to $900 million. Share buybacks are part of Nucor’s long-term strategy to return capital to shareholders.

Just like its dividend increases, the share buyback is all the more impressive since its competition is just struggling to manage its debt , let alone pull off a share buyback.

We’re buying Nucor in a dividend reinvestment program, looking for long-term stability and growth.

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