Nucor Corporation (NYSE:NUE) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 30th of March will not receive the dividend, which will be paid on the 11th of May.
Nucor's next dividend payment will be US$0.40 per share, on the back of last year when the company paid a total of US$1.61 to shareholders. Looking at the last 12 months of distributions, Nucor has a trailing yield of approximately 5.2% on its current stock price of $31.2. If you buy this business for its dividend, you should have an idea of whether Nucor's dividend is reliable and sustainable. So we need to investigate whether Nucor can afford its dividend, and if the dividend could grow.
View our latest analysis for Nucor
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Nucor paying out a modest 39% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Nucor's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Nucor's earnings per share have been growing at 14% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, Nucor has lifted its dividend by approximately 1.4% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
Should investors buy Nucor for the upcoming dividend? Nucor has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Nucor, and we would prioritise taking a closer look at it.
While it's tempting to invest in Nucor for the dividends alone, you should always be mindful of the risks involved. For example, Nucor has 4 warning signs (and 1 which is a bit concerning) we think you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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