Nucor (NUE 0.08%) just closed the books on a record-setting year. Here's a look at what went on in 2021 at what is the largest and most diversified steel company in North America -- and the very big reason why investors should take that performance with a grain of salt.
Some very big numbers
In the first quarter of 2021, Nucor posted sales of $7.02 billion with earnings of $3.10 per share, a record for the company. In the second quarter, the steelmaker posted sales of $8.79 billion and earnings per share of $5.04, another record. In the third quarter sales tallied up to $10.31 billion, and earnings totaled $7.28 per share, yet another record. Topping it all off was the company's fourth quarter, where sales came in at $10.36 billion with earnings of $7.97 per share, a fourth consecutive record.
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For the full year, Nucor recorded sales of $36.48 billion, an incredible 81% higher than the $20.14 billion it sold in 2020. The increase came from a mix of increased tons sold, up 11%, and higher average selling prices, which rose a massive 64% over 2020. On the bottom line, Nucor earned $23.16 per share, which is shockingly close to 10 times the $2.36 per share it earned in 2020. Given the quarterly records that were broken, 2021 was a record year. Demand was so strong for steel that the company's mills operated at 94% of capacity in 2021 compared to 82% the prior year.
Nucor simply had an incredible year. And it rewarded investors, too, increasing the dividend by a huge 23% in December. That comes after a string of years where the Dividend Aristocrat provided just token, low single-digit hikes. It suggests that Nucor believes it has seen a step-change in its business that can support the materially increased payment over time.
The fly in the ointment
But, even after that huge dividend hike, the dividend yield here is still a miserly 1.7%. That's partly because the stock has roughly doubled in price since the start of 2021. The yield is materially lower now than when 2021 began, when it offered a yield of around 3%. In other words, investors saw the company's results and bid the shares up accordingly. If you don't already own Nucor, now would likely be a very bad time to jump aboard.
It's not that Nucor will suddenly lose its way and become a bad company. That's unlikely -- it is one of the best-run steel mills in the world. But this doesn't alter the fact that steel is a highly cyclical business prone to often dramatic, and sometimes quick, ups and downs. The records investors are seeing today will, eventually, be a distant memory as falling demand leads to steel prices dropping and financial results faltering. Steel is a key industrial metal, and when the economy cools off, so will the industry. It's just how things work in steel.
NUE data by YCharts
Don't look at that as a bad thing. It's an incredibly informative piece of information, especially when you add in the 2021 results. Essentially, you have seen how much Nucor can earn when times are flush, so there's a benchmark to watch. That said, the company is always investing, so it achieves higher highs and higher lows in its business. So 2021 is the current high-water mark, but it probably won't be the last in the company's history. Still, the cyclical steel industry will eventually turn down, likely when the economy stalls, and Nucor's stock will tumble as investors jump out. A yield above 4%, which it has hit during recent recessions, would likely be a great buying opportunity. A 3% yield would probably be a fair entry point.
Make the decision to act now
The problem with the suggestion to put Nucor on your wishlist for a 3% or 4% yield is human nature. It is hard to choke down the fear and hit the buy button when a cyclical stock is plunging during an economic weak patch. That's why looking at the impressive 2021 record is so important. This is what Nucor is capable of when times are good, which can help you look past the relatively dismal numbers it will likely be posting when times aren't so good. If investors choose to act now, when the yield spikes in the future they will be far more likely to make the contrarian, and better, play here.
