1 Magnificent Dividend King Down 33% to Buy and Hold Forever

Nucor (NYSE: NUE) is a steel company, and that has major implications for its financial performance, given the inherent cyclicality of the steel industry. However, Nucor has managed to achieve an incredible feat despite the cyclical nature of the industry in which it operates.

Indeed, the company has joined the elite group known as Dividend Kings thanks to its 51 consecutive annual dividend increases. Here's why now, with the stock down by around 33% from recent highs, is a good time to buy Nucor, with the plan to hold on to it forever.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

Nucor's price drops are opportunities

You would think that a stock losing around a third of its value in roughly a year would be a harrowing experience. In some ways it is, but when it comes to Nucor, well, it's not an unusual event. It lost about as much in 2022, and in even less time.

NUE data by YCharts.

In fact, if you look back over the last few decades, Nucor's shares have lost 25% or more of their value more than a dozen times. This is not the stock for investors with weak stomachs. If you can't handle this level of volatility, you should avoid Nucor altogether.

The thing is, since the early 1990s, Nucor's total return, which includes reinvested dividends, has bested what you would have achieved if you had owned the SPDR S&P 500 Trust (NYSEMKT: SPY). Basically, despite the volatility, and even after the most recent declines, Nucor's stock price has marched impressively higher over time.

NUE total return level, data by YCharts.

Nucor is built to survive and thrive

The stock price volatility here isn't really shocking given that the steel industry is highly cyclical. Steel goes into everything from bridges to buildings to home appliances.

When commodity prices are weak because of falling demand, Nucor's top and bottom lines will fall. That's basically what's happening right now, with the company's earnings off materially from recent peaks.

NUE EPS diluted (quarterly), data by YCharts; EPS = earnings per share.

The company is well aware of the industry's dynamics and has long focused on having a strong balance sheet so it can survive the normal downturns. The debt-to-equity ratio is around 0.33 today, which would be reasonable for just about any company.

It has also built a diversified business, with a material number of value-added products. Such products have higher margins, and the diversification means there are more growth levers to pull even when the steel industry is weak, broadly speaking.

Nucor also has a habit of investing when the sector is on the outs. Management often talks about higher highs and higher lows with regard to earnings, which basically means it is always looking to improve its business no matter the point in the steel cycle. The current downturn is no exception, with capital spending of around $3 billion over the 12 months through the end of the third quarter of 2024. That's well above the recent average run rate of roughly $1.9 billion a year.

The time to buy is when Nucor is being shunned

The big takeaway here is that Nucor's business is definitely struggling right now, but that's just how the steel industry works. Management is aware of the cyclicality of the industry in which it operates and is prepared for it.

In fact, it is once again attempting to take advantage of the weak patch by investing in its business. This is not a company that's in a position of weakness; it is just as strong as it has ever been.

Thus, if you want to buy a Dividend King that has proved it knows how to grow its business over time, no matter what the world throws at it, you might want to put Nucor on your buy list today.

And if you do, you'll probably want to hold on forever, even though there will be periods when the stock gets crushed. The thing is, if history is any guide, big stock declines are buying opportunities when it comes to this Dividend King.

Should you invest $1,000 in Nucor right now?

Before you buy stock in Nucor, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nucor wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $843,960!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of January 13, 2025

Reuben Gregg Brewer has positions in Nucor. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.