Let’s begin by defining dividend yield. It’s simply the dividend per share paid by the company divided by the current share price. A lot of investors prefer the uncertain capital gains, which are dependent on the fluctuations of the stock market to more stable and consistent dividends. High dividend paying stocks are normally top holdings in investors’ retirement portfolios. An investor can plan his finances better with stable income coming from dividends.
The attractive dividend yield of Nucor
While other steel companies find their profits and the dividends drop in cyclical downturns, Nucor maintains a healthy dividend yield. The current yield is closer to 3%, which is more than the yield on a ten-year Treasury note. The previous chart shows the trends in dividend yield for Nucor. As you can see, since 2005 the dividend has been hovering around 3%. This is a healthy number considering the challenges in the steel industry. The company has consistently paid dividends for past 165 quarters. There aren’t many companies on Wall Street that can boast about this kind of consistency.
Why should the dividend yield be analyzed critically?
While a high dividend yield is regarded as a positive sign for any stock, investors should be cautious of stocks with a very high dividend yield. Earlier you saw that dividend yield is simply the dividend per share divided by the current price per share. If the share price falls dramatically due to changes in fundamentals, the dividend yield automatically increases. So, the share price movement and other profit ratios should also be critically analyzed before investing in a stock.
We have analyzed Nucor Corporation (NUE) in this series. Other steel companies listed in the U.S. are ArcelorMittal (MT), U.S. Steel Corporation (X), and Reliance Steel & Aluminum (RS). An investor can also invest in exchange-traded funds (or ETFs) like the SPDR S&P Metals and Mining ETF (XME) to get exposure to the steel industry.