1 Magnificent Dividend King Down 33% to buy and hold forever
Nucor (NYSE: NUE) It is a steel company, and this has significant implications for its financial performance given the natural cycle of the steel industry. However, despite the cyclical nature of the industry in which Nucor operates, it has managed to achieve an incredible feat.
In fact, the company has joined an elite group known as Dividend Kings thanks to 51 consecutive annual dividend increases. Here’s why now, with the stock down about 33% from recent highs, is a good time to buy Nucor, to stay in the plan forever.
You’d think a stock losing a third of its value in roughly a year would be a miserable experience. In some ways it is, but when it comes to Nucor, well, it’s not an uncommon occurrence. In the year By 2022, it’s almost gone, and in less time.
In fact, if you look back over the past few decades, Nucor shares have lost 25% or more of their value more than a dozen times. This is not a stock for investors with weak stomachs. If you can’t handle this level of volatility, you should avoid Nucor altogether.
The thing is Nucor from the early 1990s. Total returnwhich includes Reinvested dividendsIf you own it, you can achieve it SPDR S&P 500 Trust (NYSEMKT: SPY). Basically, it’s volatile, and even after the recent downturn, Nucor’s stock price has risen dramatically from time to time.
As the steel industry is highly cyclical, the stock price volatility here is not too alarming. Steel goes into everything from bridges to buildings to furniture.
As commodity prices weaken due to reduced demand, Nucor’s top and bottom lines fall. That’s essentially what’s happening now, with the company’s earnings taking a material fall from recent highs.
The company is well aware of the dynamics of the industry and has long focused on maintaining a strong balance sheet to survive normal downturns. The debt to equity ratio is around 0.33 today, which would be reasonable for any company.
It has also built a diversified business with value-added products in material quantities. Such products have higher margins, and the difference means there are plenty of growth levers to pull even when the steel industry is weak, broadly speaking.
Nucor also has experience in investing when the sector is outsourced. Management often talks about high highs and high lows, which is basically always looking to improve the business no matter what happens in the cycle. The current downturn is no exception, with nearly $3 billion in capital spending in the 12 months to the end of the third quarter of 2024. This beats the recent average run rate of $1.9 billion per year.