Nucor Corp (NYSE: NUE) is a champion. Besides being the largest steel and steel products manufacturer in the US, it’s also the biggest recycler in North America.

Nucor is often cited as the best steel stock for income investors to own. That might seem strange to some given the highly cyclical nature of its business. However, Nucor has proved its ability to generate profits through good and bad times. Moreover, it has raised its annual dividend for 43 years in a row. It means the company has remained committed to rewarding its shareholders through thick and thin.

Tempted to grab some of that stock? Let’s see what’s going around Nucor and whether now is a good time to buy.

Nucor overview

Nucor
Nucor

The seeds of Nucor were sown in a dispute. Ransom E. Olds, the person who created the Oldsmobile, fell out with stockholders in his company, Olds Motor Works, in 1905. He quit and set up REO Motor Co.

The new venture did well at first but it became too dependent on defense contracts. Its end came in 1955 with that of the Korean War. A merger with Nuclear Consultants led to the creation of Nuclear Corporation of America.

The merged business narrowly escaped bankruptcy in 1965. The following year, it moved its headquarters from Phoenix, Arizona to Charlotte, North Carolina. That same year, company president Ken Iverson suggested an entry into steelmaking.

The name Nucor was adopted in 1971 and the company went public in 1972. Its market cap is currently just over $19 billion.

Nucor ranked at number 170 on the 2016 Fortune 500 list. It has featured in the ranking for 22 years.

The most recent quarter

The figures for the first quarter of 2017 came out mere days ago and earnings were the best in recent years. Moreover, Nucor said it expected the second-quarter number to grow from there.

On a consolidated basis, net earnings surged to $356.9 million from $159.6 million in the preceding three months and $87.6 million in the first quarter of 2016. Earnings per diluted share were $1.11 compared to $0.50 in the previous quarter and $0.27 a year earlier.

First-quarter net sales jumped by 22% quarter-on-quarter and 30% year-on-year to reach $4.82 billion. Nucor attributed the impressive growth to higher volumes and pricing.

In addition, the company maintained its strong liquidity position. It wrapped up the quarter with $1.7 billion in cash, cash equivalents, and short-term investments.  It also has a $1.5 billion revolving credit facility as yet untapped and not due to expire until April 2021. Nucor reported total assets of $15.9 billion, while total liabilities were $7.4 billion.

Dividends

Nucor paid its first dividend in 1973.

In November 2016, it announced a cash dividend of $0.3775 per share, which shareholders collected in February 2017. This marked the 175th quarter of dividend payments and the 44th  year of growth in the base dividend. Also in February, Nucor declared the same distribution. The dividend currently yields 2.52%, while the payout ratio is about 40%.

Nucor has paid special dividends in the past but prospective investors shouldn’t bank on that when making decisions. The company made supplemental payments from 2005 through 2008, when the industry enjoyed its last up cycle. Still, it goes to show that Nucor is generous when in a position to boost shareholder rewards.

Factors to consider

As mentioned earlier, Nucor operates in a highly cyclical industry. It needs steel prices to grow, which requires a healthy economy to drive up demand.

Nevertheless, Nucor looks set to ride the wave of success for quite some time. Its management made significant investments after the most recent downturn to achieve vertical integration. Moreover, company executives see the current momentum continuing thanks to ongoing strength in the automotive, energy, and non-residential construction markets. So while the company benefited from the post-election stock rally, its good fortunes don’t hinge on the infrastructure spending plans of US President Donald.

What Nucor will definitely benefit from are recent favorable rulings in a string of anti-dumping cases. Moreover, some other cases are under way. This will help US steel producers improve their profitability as cheap imports go down and prices go up.

Valuation

With expectations for better things to come, Nucor shouldn't feel overvalued at a trailing P/E multiple of 24.2. Besides, the industry average is 36.4. In addition, Nucor’s forward P/E ratio is 15.5.

The shares have traded at a low of $44.81 and a high of $68 over the past 52 weeks. At the time of writing, they had closed about 11.8% off the high.

To sum up, Nucor has a proven track record of performance, bright prospects, a shareholder-friendly culture, a decent dividend yield, and a strong balance sheet. It’s definitely worth serious consideration as a long-term holding in an income-focused portfolio.

Disclosure:

I do not have a financial interest in any of the companies featured in this article, nor do I plan on having one within the next three days.

This article reflects my opinions. The company is not paying me to write it and I do not have any business relationship with any companies mentioned in it.