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Nucor Corporation (NYSE: NUE) is set to trade ex-dividend within the next two days. You will need to buy shares before December 30 to receive the dividend, which will be paid on February 11.
Nucor’s next dividend payout will be US $ 0.41 per share, at the end of last year when the company paid a total of US $ 1.61 to shareholders. Calculating the value of last year’s payouts shows that Nucor has an ending return of 3.1% on the current stock price of $ 52.44. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden goose! So we have to ask ourselves if Nucor can afford its dividend and if the dividend could increase.
Check out our latest review for Nucor
Dividends are usually paid out of company profits, so if a company pays more than what it earned, its dividend is usually more at risk of being reduced. Nucor distributed 114% of its profits as dividends to shareholders last year. Without more sustainable payment behavior, the dividend seems precarious. Having said that, even very profitable companies can sometimes not generate enough cash to pay the dividend, which is why we always need to check if the dividend is covered by cash flow. Fortunately, she only paid 40% of her free cash flow in the past year.
It’s good to see that if Nucor’s dividends haven’t been covered by earnings, at least they’re affordable from a cash flow perspective. Yet if the company repeatedly paid out a dividend that was greater than its profits, we would be concerned. Very few companies are able to sustainably pay dividends greater than their declared profits.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
When profits decline, dividend companies become much more difficult to analyze and hold securely. If profits fall enough, the company could be forced to cut its dividend. With that in mind, we are hampered by Nucor’s revenue decline of 7.8% per year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid decreases.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Nucor has achieved an average annual increase of 1.2% per year in its dividend, based on the last 10 years of dividend payments.
To summarize
From a dividend perspective, should investors buy or avoid Nucor? It is not a good combination to see a company with declining profits and pay out 114% of its profits, which could imply that the dividend may be reduced in the future. However, the cash payout ratio was much lower – good news from a dividend perspective – which makes us wonder why there is such a mismatch between income and cash flow. It’s not the most attractive proposition from a dividend standpoint, and we would likely miss this one for now.
That being said, if you still think of Nucor as an investment, it will help you to know the risks that this stock faces. Concrete example: we have spotted 5 warning signs for Nucor you must be aware of this.
A common investing mistake is to buy the first stock of interest you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.
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This Simply Wall St article is general in nature. It is not a recommendation to buy or sell stocks, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
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