13 Aug

Steel Investors: Higher Dividends This Year?

WRITTEN BY Mark O'Hara

Dividends

As we noted previously, steel companies’ cash flows have improved amid higher steel prices (CLF). As cash flows increase, steel companies also face the question of capital allocation. Typically, companies use excess cash for growth or debt reduction. Companies can return cash to shareholders in the form of dividends or share buybacks.

Steel Investors: Higher Dividends This Year?

Steel Dynamics

Steel Dynamics (STLD) has a share buyback program in place. During the company’s second-quarter earnings call, Theresa Wagler, Steel Dynamics’ CFO, said, “We also repurchased $180 million of our common stock during the first half of the year and at the end of the quarter we had $54 million still available pursuant to the $450 million board authorized program.” In response to a question, Wagler termed the buyback program as a “valuable tool.” She said that after the completion of the current buyback program, the company will “take a look at where we stand on both from a transactional perspective and organic perspective and add that back to the toolbox if it makes sense to utilize that and so we’ll be addressing our consignment surely in the coming third quarter.”

Nucor

Nucor (NUE) repurchased $170 million of its shares in the first half of 2018. Including the dividends, Nucor has returned $410 million to shareholders in the first half of 2018. The company intends to return a minimum of 40% of its earnings to shareholders across the business cycle. During the company’s second-quarter earnings call, Jim Frias, Nucor’s CFO, said, “If you look at our net-debt-to-cap position, and if our net-debt-to-cap is too low, we would probably do more return to shareholders; if we got too high, we might throttle things back. But, right now, we’re in a place where we can easily return the full 40% to shareholders.” John Ferriola, Nucor’s CEO added that “our first priority will remain investing for profitable growth of our Company.”

Nucor and Steel Dynamics are investing in organic and inorganic growth to capture the upside from the current uptick in US steel prices.

Next, we’ll discuss U.S. Steel Corporation (X) and AK Steel’s (AKS) capital allocation priorities.

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