The need to spend more on infrastructure has been at the forefront recently with a bipartisan bill slowly making its way through Congress. But even if that bill is rejected, there are many infrastructure needs that will have to be addressed. Spending for improvements and upgrades will continue as needed on the local level with or without federal support.
A federal spending bill would accelerate the process, but North America's leading steel and steel products company doesn't need that approval to continue to thrive. Nucor (NUE -8.87%) has been breaking earnings records all year, achieving a new annual earnings record after just the first six months of 2021. The company believes the strength in the business will continue for the foreseeable future and recently showed that confidence by announcing its largest new single project ever.
Nucor's Gallatin, Kentucky, steel mill continues with expansion plans. Image source: Nucor.
Growing in a greener world
The new $2.7 billion greenfield steel mill project that was recently announced is just the latest in an ongoing string of growth initiatives as Nucor works to capture more of the domestic market in higher-value sheet and plate steel products. And the company is also expanding its focus on the environment and climate change initiatives. It has long been North America's largest recycler, and the new project aims to take market share with a significantly lower carbon footprint than competitors in the Midwest and Northeast.
Nucor didn't just start looking to go green with the new project announcement, either. The company had previously released a strategy for greenhouse gas reduction. Its goal is to bring its steel mill carbon dioxide emissions down to 77% below the current global steelmaking average by 2030.
In a conference call announcing the new mill, CEO Leon Topalian said the company's greenhouse gas intensity is already less than one-third of the global sector average and nearly one-fifth of the integrated steel producer average. Integrated producers that make steel the older way of using blast furnaces rather than recycling and re-melting scrap are where Nucor believes it can take market share with the new project.
The core of infrastructure projects
Nucor has also been focusing on the growing renewable energy sector, both as a user and a supplier. Earlier this year, the company inked a supply agreement with a maker of utility-scale solar panel tracking systems. In 2021, it has also announced multiple power purchase agreements to use both wind and solar capacity to supplement its energy needs. Nucor also recently spent $1 billion to acquire a maker of insulated building panels. Nucor will supply steel for the panels, which are used for energy efficiency in areas such as fulfillment warehouses, cold storage, and data centers.
Nucor's product uses go far beyond just renewable energy infrastructure. The company's products are a diversified mix of steel and steel products including sheet and bar, plate, and structural beams used in the construction, automotive, and appliance sectors, among others.
As an overall sector, however, construction represents the biggest user of Nucor's products, with 56% of its sales in 2020. The new plant will aim to grow the company's market share in value-added automotive sheet products from its current level of about 6% of sales. But construction will remain the biggest driver across the company's breadth of products.
Paying back shareholders
There are several good reasons to plan to hold shares of Nucor for the next decade and beyond. While the company remains focused on growing the business, it has a record of taking care of shareholders along the way. It has increased its base dividend for 48 straight years, and with an expected December 2021 raise, that will grow to 49 years. A dividend boost in 2022 will put Nucor in the elite group of stocks known as Dividend Kings.
And the company manages the expense of that increasing dividend by strategically repurchasing shares. Through mid-September, Nucor returned almost $2 billion to shareholders between dividends and share repurchases in 2021. The majority of that came in the form of share buybacks, which were made at an average share price of $86.15, significantly lower than the recent price.
NUE dividend data by YCharts.
Management prioritizes investing cash flow to grow its business. But at times in the cycle such as now, when free cash flow is especially high, the company plans ahead for shareholder returns. After funding growth investments, future dividend increases become less expensive by reducing the share count through buybacks. That's financially savvy as well as shareholder-friendly.
After having more than doubled since the start of 2021, Nucor stock has pulled back in recent weeks. The company has been planning for a future of greener steel, higher market share, and growing profits. For investors who want to participate as infrastructure projects are executed and overall economic growth continues, it's a winning stock to buy and hold over the next decade and beyond.
