Linked here is a detailed quantitative analysis of Nucor Corporation (NYSE:NUE). Below are some highlights from the above linked analysis:
Company Description: Nucor Corporation is the largest minimill steelmaker in the U.S., and has one of the most diverse product lines of any steelmaker in the Americas.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value (see page two of the linked PDF for a detailed description):
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
NUE is trading at a discount to 1.), 2.) and 3.) above. The stock is trading at a 38.9% discount to its calculated fair value of $51.68. NUE earned a star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics (see page two of the linked PDF for a detailed description):
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
NUE earned three Stars in this section for 1.), 2.) and 3.) above. A star was earned since the free cash flow payout ratio was less than 60% and there were no negative free cash flows over the last 10 years. The stock earned a star as a result of its most recent debt to total capital being less than 45%. NUE earned a Star for having an acceptable score in at least two of the four key metrics measured.
Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive four-year period over the last 10 years (2001-2004, 2002-2005, 2003-2006, etc.) I consider this a key metric since dividends will double every five years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 38 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) or Treasury bond? 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:
1. NPV MMA Diff.
2. Years to > MMA
NUE earned a star in this section for its NPV MMA Diff. of the $26,119. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as NUE has. The stock's current yield of 4.6% exceeds the 4.1% estimated 20-year average MMA rate.
Memberships and Peers: NUE is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: Commercial Metals Company (NYSE:CMC) with a 4.6% yield, Steel Dynamics Inc. (NASDAQ:STLD) with a 3.6% yield and United States Steel Corp. (NYSE:X) with a 0.8% yield.
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 total of five stars. This quantitatively ranks NUE as a 5 Star-Very Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $115.42 before NUE's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 38 years of consecutive dividend increases. At that price the stock would yield 1.3%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 2.5%. This dividend growth rate is well below the 15.0% used in this analysis, thus providing a margin of safety. NUE has a risk rating of 1.50 which classifies it as a Low risk stock.
Like many cyclical industrials, NUE’s earnings and cash flow have struggled over the last two years. However, the company is well managed with a solid share in its markets, a very low ratio of total debt to capital percentage and a very diverse product mix. The company’s pay-for-performance and low-cost operations have helped mitigate weak demand in the most recent downturn.
Over the past quarter, the company has seen improvement in it dividend fundamentals. So much so, I may purchase some additional shares prior to its next dividend announcement when I expect to see a small increase in its rate. NUE's calculated fair value price is $51.68. However, that price uses a 15% dividend growth rate, which I think is too high for the next several years. Using a more reasonable 3% growth rate, NUE is trading at a discount to it NPV MMA price of $33.09.
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 was long in NUE (1.2% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
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