Nucor (NUE +2.10%) is a North American steel-making giant with a more diversified portfolio than any of its peers. Its elevated stock price reflects its popularity with investors. For conservative investors, it is probably the best-of-breed name to put on the wish list for when the historically cyclical steel industry heads lower again. But recent news suggests there might be reason to take a look at Nucor stock right now.
One thing that has always separated Nucor from its peers is its ongoing capital investment efforts. A recent investment Nucor made is a bit different and, perhaps, destined for a longer-term payoff. Let's take a closer look.
Image source: Getty Images.
A lot of reliability
Nucor has increased its dividend annually for nearly five decades, making it a Dividend Aristocrat steadily working its way to Dividend King status. You don't achieve a dividend record like that by accident, especially when you consider that the steel industry is highly cyclical. That makes logical sense, given that steel is a key economic building block that goes into everything from washing machines to cars to buildings.
There are a lot of features that set Nucor apart from its peers, including the use of electric arc minimills, a profit-sharing arrangement that rewards employees when times are good and gives Nucor a salary break when times are tough, and an internal focus on being ranked No. 1 or No. 2 in the industries the company serves. This last one requires ongoing capital investment. Right now, Nucor has $3.8 billion of capital investments planned between 2022 and 2025.
That cash will go toward things like new steel mills and mill expansions, which is what you would expect. But this isn't the only money that Nucor is putting to work. For example, it recently announced a $15 million investment in NuScale Power (NYSE: SMR).
Something a little different
This is a bit of a complex deal involving a blank check company called Spring Valley Acquisition Corp. (SV +0.00%) that is affecting the IPO efforts of NuScale Power. But the really important takeaway is that NuScale Power is working toward building small-scale nuclear power plants.
That's probably the joke in the "Nu" in NuScale, given that Nu could be construed to mean nuclear or a "new" scale. Indeed, current nuclear power plants are giant, expensive to build, and prone to cost overruns and delays. TerraPower, backed by Bill Gates, is also looking for ways to improve nuclear power plants, so NuScale isn't really trying to do something wildly outlandish.
NYSE: NUE
Key Data Points
Nucor, meanwhile, is putting in a little cash now to help support an industry that would need a lot of steel later if it were to take hold. A large number of small nuclear reactors would basically open up a whole new business line for the company.
And before you question Nucor on stepping outside of its core competency (making steel), it's worth noting that the "Nu" in Nucor's name harkens back to its time before making steel, when it was a supplier to the nuclear power industry and was known as the Nuclear Corporation of America. So this isn't quite as far out of bounds as you might at first believe.
The hope is that NuScale's technology will be safer, cheaper, and more scalable than current nuclear power plants. It's still early days, of course, as the company's big goal in the United States is to have a unit up and running by 2029 in Idaho. But the entire concept is really backstopped by the world's need for cheap power, noting that the United Kingdom has just announced a major move to embrace nuclear power.
Meanwhile, at a time when Nucor is producing record or near-record results, giving a little bit of cash to an industry that can produce reliable carbon-free electricity seems like a very good decision.
Something to watch
When it comes to investing for the future, Nucor's internal capital plans will always be the biggest thing to monitor. And history suggests the current plans will pay off well for investors.
However, hidden in there is a small amount to help create an entirely new industry in the nuclear power space, an area from which Nucor emerged itself. Long-term Nucor shareholders should probably view this as money well spent to support long-term steel demand. And if the technology does take off, Nucor will have the added benefit of owning a piece of the company, too.
