The steel industry is highly cyclical, and steel producers such as Nucor (NYSE:NUE) have to weather dramatic shifts in demand to sustain their businesses over the long run. Nucor in particular stands out among its steel industry peers because of its long record of strong dividend performance, sharing its long-term success with shareholders through its quarterly payouts. With so many dynamics affecting the steel industry, however, investors have to be aware of the risks that Nucor faces and their potential impact on the dividend.

Let's take a closer look at Nucor to see whether investors can be confident in its ability to keep its dividend moving higher.

Dividend stats on Nucor

Current Quarterly Dividend Per Share

$0.3775

Current Yield

2.7%

Number of Consecutive Years With Dividend Increases

44 years

Payout Ratio

42%

Last Increase

December 2016

Data source: Yahoo! Finance. Last increase refers to ex-dividend date.

Dividend yield

Nucor's current 2.7% dividend yield is above the average for the S&P 500, but it's toward the lower end of what the steelmaker has traditionally paid. Throughout much of the past decade, Nucor's dividend yield has been in a range of 3% to 5%, reflecting in part the fact that its stock price was treading water during a sluggish period for the steel industry. Nucor's stock price has moved sharply higher over the past couple of years, and that has led to the dramatic declines in the stock's yield. Nothing about Nucor's past dividend yield suggests that the payout got too high, leaving the company in a sweet spot for dividend investors.

Nucor employee in front of a steel mill.

Image source: Nucor.

Payout ratio

Nucor's current payout ratio of 42% is conservatively low. Investors need to understand that as a cyclical company, Nucor is vulnerable to fairly wide swings in its earnings, and a look back at recent history shows a number of spikes in payout ratios that coincide with short-term earnings challenges. If earnings play out as investors expect, Nucor's payout ratio will remain low, and that could raise hopes that the steelmaker will accelerate its dividend growth in the near future.

Dividend growth

Nucor has a long track record of dividend growth, with 45 consecutive years of annual dividend increases. However, Nucor's total dividends have been lumpier than you'd think, because it has supplemented its regular dividends with special payouts from time to time. Special dividends became commonplace in the late 2000s, but since then, Nucor has made only token dividend increases. The most recent boost of just a quarter-cent reflects Nucor's common practice for years, and it makes more sense for shareholders to think of Nucor as a consistent dividend payer rather than a dividend growth standout.

NUE Dividend Chart

NUE Dividend data by YCharts.

What's happened with Nucor lately?

Nucor has seen a big recovery recently as conditions in the steel industry have improved. The steelmaker was aggressive during the past several years, choosing not to hesitate despite sluggish conditions in the industry and instead spending billions of dollars on expansion and operational improvements. The result has been increased capacity to serve a wider range of customers, and the company has also benefited from trade restrictions on foreign steelmakers that have reduced the severity of illegal dumping. The first six months of 2017 have been Nucor's most profitable in nearly a decade.

Nucor even stands out among its industry peers. The company has worked hard to allocate capital well, dividing available funds between internal investment and strategic acquisitions. In addition, rather than simply boosting the amount of steel it can make, Nucor has focused on being able to produce different types of steel. The result is a nimbler, more responsive business that can meet the needs of a more diverse set of customers, and that has made Nucor more attractive than other steelmakers as conditions in the industrial economy improve.

What to expect from Nucor

Nucor has emerged from the worst of times for the steel industry, and it looks better than ever. Dividend investors have to hope that Nucor will choose to start making more considerable increases to its quarterly payouts in future years, but its current payout appears quite safe. For now, big gains in the stock's price should satisfy long-term investors with better total-return performance.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Nucor. The Motley Fool has a disclosure policy.