Is It Smart To Buy Nucor Corporation (NYSE:NUE) Before It Goes Ex-Dividend?
Nucor Corporation (NYSE:NUE) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Nucor's shares before the 28th of December in order to be eligible for the dividend, which will be paid on the 9th of February.
The company's next dividend payment will be US$0.54 per share, and in the last 12 months, the company paid a total of US$2.04 per share. Calculating the last year's worth of payments shows that Nucor has a trailing yield of 1.2% on the current share price of $178.06. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Nucor
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Nucor is paying out just 10% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Nucor generated enough free cash flow to afford its dividend. Luckily it paid out just 8.5% of its free cash flow last year.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Nucor has grown its earnings rapidly, up 38% a year for the past five years. Nucor looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Nucor has lifted its dividend by approximately 3.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Nucor is keeping back more of its profits to grow the business.
Final Takeaway
Is Nucor worth buying for its dividend? We love that Nucor is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Nucor looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To that end, you should learn about the 2 warning signs we've spotted with Nucor (including 1 which can't be ignored).
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
