This article originally appeared on The DIV-Net September 1, 2008.
Linked here is a PDF copy of my detailed analysis of Nucor Corp (NUE). Below are some highlights from the above linked analysis:
Company Description: Nucor Corporation is engaged in the manufacture and sale of steel and steel products. As the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
NUE is trading at a discount to 1.), 2.) and 3.) above. If I exclude the high and low valuations and average the remaining two, NUE is trading at a 30.9% discount. NUE earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
NUE earned three Stars in this section for 1.), 2.) and 3.) above. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (1998-2001, 1999-2002, 2000-2003, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. NUE has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 35 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA
NUE earned one Star in this section for 1.) above. The NPV MMA Diff. of the $9,719 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as NUE has. If NUE grows its dividend at 15.0% per year, it will take 9 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%.
Other: NUE is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. Even though NUE is exposed to cyclical end-markets, the company has a low total debt to assets ratio and generates substantial free cash flow. With the global steel industry consolidating via mergers, the increased concentration of production among fewer companies should result in greater pricing discipline. This should help NUE to continue generating strong free cash flow for the next several years, thus enabling NUE to raise its dividend, make acquisitions and invest in new capital/technology improvements.
Conclusion: NUE earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of five Stars. This quantitatively ranks NUE as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price could rise to $70.16 before NUE’s NPV MMA Diff. decreases to the low-end $3,000 NPV MMA Diff. that I like to see. At that price NUE would yield 1.82%. I find NUE intriguing and would consider adding it to my income portfolio sometime in the future.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I had no position in NUE (0.0% of my Income Portfolio).
What are your thoughts on NUE?