new core (Nue 0.95%) is a steel company, and given the inherent cyclicality of the steel industry, this has a significant impact on the company's financial performance. However, Nucor has managed to accomplish a remarkable feat despite the cyclical nature of the industry in which it operates.
In fact, the company has joined the elite group known as Dividend Kings thanks to its 51 consecutive annual dividend increases. That's why now, with the stock price down about 33% from recent highs, is a good time to buy Nucor with plans to hold it forever.
Nucor's price cut is an opportunity
You might think losing about a third of a stock's value in about a year would be a harrowing experience. In some ways that is true, but when it comes to Nucor, it's not unusual. In 2022, similar losses occurred in an even shorter period of time.
Nue Depends on the data Y chart.
In fact, looking back over the past few decades, Nucor's stock has lost more than 25% of its value more than a dozen times. This is not a stock for investors with a weak stomach. If you can't handle this level of volatility, you should avoid Nucor completely.
The problem is that since the early 1990s, Nucor's total return, including reinvested dividends, has been SPDR S&P 500 Trust (spy 1.00%). Essentially, despite the volatility, and even after the recent selloff, Nucor's stock price has risen impressively over time.
NUE total return level, Depends on the data Y chart.
Nucor is built to survive and thrive
Given that the steel industry is a highly cyclical industry, the stock price movements here aren't all that shocking. Steel is used in everything from bridges to buildings to home appliances.
As commodity prices fall due to decreased demand, Nucor's sales and bottom line will decline. That's basically what's happening right now, with the company's revenue down significantly from its recent peak.
NUE EPS dilution (quarterly), Depends on the data Y chart; EPS = earnings per share.
The company is well aware of industry trends and has long focused on maintaining a strong balance sheet that allows it to weather normal economic downturns. The current debt-to-equity ratio is around 0.33, which is a reasonable number for almost any company.
We have also built a diversified business with a vast number of value-added products. Such products are highly profitable, and diversification means, broadly speaking, that even when the steel industry is in a downturn, more growth levers can be pulled.
Nucor also has a habit of investing when its sectors are down. Management often talks about highs and lows when it comes to earnings, which essentially means that they are always looking to improve the business at any point in the steel cycle. The current economic downturn is no exception, with approximately $3 billion in capital spending for the 12 months ending in the third quarter of 2024. This is much higher than the recent average occupancy rate of approximately $1.9 billion per year.
The time to buy is when Nucor is shunned.
The takeaway here is that Nucor's business is definitely struggling right now, but that's how the steel industry works. Business owners are aware of the cyclicality of the industry in which they operate and are preparing for it.
In fact, the company is trying to take advantage of weaknesses by investing in the business again. This is not a weak company. It's as strong as ever.
So if you want to buy a Dividend King who has proven he knows how to grow a business over time no matter what the world throws at you, we recommend adding Nucor to your buy list now.
And if you do, you'll probably want to hold onto it forever, even if there's a period when the stock price crashes. If history is any guide, a significant drop in share price is a buying opportunity when it comes to dividends.