The Most Boring Stock You've Ever Seen

Summary

The video discusses Nucor Corporation, America's largest steel producer and recycler, highlighting its unique business model, robust dividend history, and recent financial performance. It also touches on the company's environmental sustainability and the potential impact of political elections on its future.

Takeaways

• 🔍 The script discusses the largest steel producer and recycler in America, Nucor Corporation, which has benefited from the Biden Administration's policies.
• 💰 Nucor has a unique business model with 73% of its inputs being scrap, tied to steel prices, providing a natural hedge against market fluctuations.
• 📈 The company has impressively increased its dividend for 50 consecutive years, showcasing its financial stability and growth.
• 🌟 A visual representation of global steel production in 2022 is provided, highlighting the dominance of China and Nucor's position as the 15th largest steel company worldwide.
• 🏆 Nucor's 40-year return of around 13,000% is significantly higher than the S&P 500's return of 3600%, underscoring its historical performance as an investment.
• 📊 The script mentions a surge in Nucor's share price, with a 279% return over the past four years compared to the S&P 500's 75%, indicating strong market performance.
• 📉 Despite the company's overall growth, Nucor's dividend yield has dropped to under 2%, which is lower than its historical yields above 4%.
• 💹 Nucor's financial strategy includes a low payout ratio of 9-12%, providing a buffer for potential future dividend increases even during challenging times.
• 🌱 The company has a notable environmental aspect, recycling 22 million tons of scrap annually, with its products made from an average of 77% recycled content.
• 🏗️ Nucor's production method using electric arc furnaces and steel scrap as raw material differs from traditional blast furnaces, offering a cost advantage and a natural hedge against price volatility.
• 🛒 The script also touches on Nucor's capital expenditures and acquisitions, including the purchase of a data center company, Southwest Data Products, and its focus on reducing shares outstanding to increase dividends per share.

Q & A

What is the main topic of the video?

The main topic of the video is Nucor Corporation, the largest steel producer and recycler in America, and its business model, financial performance, and dividend history.

What is unique about Nucor's business model?

Nucor's business model is unique because it uses electric arc furnaces with a lower fixed cost structure and primarily uses steel scrap as the raw material, which provides a natural hedge against steel price fluctuations.

How has Nucor's dividend history been?

Nucor has a strong dividend history, having increased its dividend for 50 consecutive years, which is a rare achievement in the corporate world.

What is the significance of the 40-year return mentioned in the video?

The 40-year return of around 13,000% for Nucor is significant as it vastly outperforms the S&P 500's return of 3600% over the same period, indicating exceptional long-term investment returns.

What impact did the Biden Administration have on Nucor?

The Biden Administration's infrastructure plans, which included a $1.5 trillion spending, benefited Nucor by increasing demand for steel and positively impacting the company's stock price.

How does Nucor's revenue compare to other steel companies globally?

Nucor is ranked 15th among the largest steel companies globally, with its revenues peaking in 2021 and showing volatility in subsequent years.

What is the significance of Nucor's low payout ratio?

Nucor's low payout ratio, between 9% to 12%, provides a buffer that allows the company to continue increasing its dividend even during periods of financial stress.

Why might Nucor's dividend growth rate be considered low?

Nucor's dividend growth rate is considered low because it has been pacing with inflation, with a 10-year growth rate of 3.3% and a current yield under 2%, which is not very attractive for income investors.

What is the role of share buybacks in Nucor's financial strategy?

Share buybacks play a significant role in Nucor's financial strategy as they reduce the number of shares outstanding, which can increase dividends per share and enhance shareholder value.

How does Nucor's focus on recycling contribute to its environmental appeal?

Nucor is North America's largest recycler, recycling 22 million tons of scrap annually, including 9 million cars. This commitment to recycling and using an average of 77% recycled content in its steel products adds to its green appeal.

What are some of the risks and challenges Nucor might face in the future?

Some risks and challenges Nucor might face include the volatility of steel prices, the potential impact of political changes on infrastructure spending, and the need to manage capital expenditures effectively to sustain growth and maintain a strong balance sheet.

Outlines

00:00

🏭 Nucor Corporation: America's Largest Steel Producer and Recycler

The video script introduces Nucor Corporation, the largest steel producer and recycler in America, which has benefited significantly from the Biden Administration's policies. Nucor has a unique business model with a natural hedge, utilizing 73% scrap in its inputs, which correlates with steel prices. The company boasts an impressive track record of increasing dividends for 50 consecutive years. The script teases the company's identity before delving into a discussion about steel production globally and in the U.S., highlighting Nucor's position as the 15th largest steel company worldwide. The video also mentions a substantial return on investment over 40 years, comparing Nucor's performance favorably to the S&P 500.

05:04

📈 Nucor's Financial Performance and Strategy Analysis

This paragraph delves into Nucor's financial performance, showing a dramatic spike in revenues in 2021, which jumped by 81%. The video discusses the company's strategy, including its use of electric arc furnaces and steel scrap as raw materials, providing a natural hedge against steel price fluctuations. The script also covers Nucor's dividend growth, which has been relatively low over the past decade, and its current low yield, which may not be attractive to income investors. The company's focus on share buybacks rather than dividend increases is highlighted, along with its strong cash flow and capital expenditures on various projects across the United States.

10:04

🌿 Nucor's Green Appeal and Business Model Insights

The final paragraph discusses Nucor's environmental appeal, noting its role as North America's largest recycler with a significant portion of its steel products made from recycled content. The script contrasts Nucor's electric arc furnace production method with the blast furnaces used by competitors like U.S. Steel, highlighting the advantages of Nucor's lower fixed cost structure. The paragraph also touches on Nucor's financials, including raw material sales and intercompany transactions, and ends with a reflection on the company's potential for future growth and the importance of prudent investment during periods of high revenue.

Keywords

💡Clickbait

Clickbait refers to sensationalized or misleading titles designed to attract clicks and views, often used in digital media. In the video, the speaker mentions the audience's aversion to clickbait titles, implying a promise to reveal a company's name that has benefited from the Biden Administration, thus engaging the audience's curiosity.

💡Steel Producer

A steel producer is a company that manufactures steel, a metal alloy primarily composed of iron and carbon. The video discusses America's largest steel producer and recycler, Nucor Corporation, emphasizing its significance in the industry and its business model.

💡Recycler

A recycler is an entity that processes used materials into new products, reducing waste and conserving resources. The script highlights Nucor as America's largest steel recycler, annually recycling millions of tons of scrap, which is integral to its environmental and economic strategy.

💡Biden Administration

This term refers to the current U.S. presidential administration led by President Joe Biden. The video mentions that Nucor has benefited significantly from policies and initiatives under this administration, particularly related to infrastructure spending.

💡Business Model

A business model describes the rationale of how a company creates, delivers, and captures value. The video explains Nucor's unique business model, which includes a natural hedge with 73% of its inputs being scrap, tied to steel prices, contributing to its stability and growth.

💡Dividend

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. The video emphasizes Nucor's impressive track record of increasing dividends for 50 consecutive years, showcasing the company's financial health and investor returns.

💡Steel Production

Steel production refers to the manufacturing process of steel. The script provides a historical perspective on steel production in the U.S., noting a decline since 1973, and contrasts it with China's dominance in the industry since 1966.

💡Nucor Corporation

Nucor Corporation is a leading U.S. steel producer mentioned in the video. It is highlighted as the company under discussion, known for its innovative business practices, strong financial performance, and significant returns for investors.

💡Infrastructure Act

The Infrastructure Act refers to legislation aimed at funding the construction and maintenance of public works. The video discusses how Nucor's growth has been influenced by the anticipated spending from the Infrastructure Act, suggesting potential impacts on the company's future.

💡Payout Ratio

The payout ratio is the proportion of earnings paid out as dividends to shareholders. The script points out Nucor's very low payout ratio, which is beneficial as it provides a buffer for dividend increases even during challenging times for the company.

💡ESG Score

ESG stands for Environmental, Social, and Governance, and the score assesses a company's performance in these areas. The video notes Nucor's surprisingly high ESG score for a steel company, due to its recycling practices and use of recycled content in its products.

Highlights

Nucor is the largest steel producer and recycler in America.

The company has benefited significantly from the Biden Administration.

Nucor has a business model with a natural hedge, using 73% scrap in their inputs.

They have increased their dividend for 50 consecutive years.

Nucor's 40-year return is around 13,000%, compared to the S&P 500 at 3600%.

Nucor rose strongly following the last election due to $1.5 trillion infrastructure spending.

The company's sales are primarily to the Nacirema, a fictional society in the transcript.

Nucor's share price spiked, returning 279% over the past four years, compared to the S&P 500's 75%.

Revenues for Nucor jumped 81% in 2021, indicating significant growth.

Nucor's yield has dropped since the election, now under 2%.

Using the Quantigence Dividend Growth Strategy, Nucor ranks low with a Q-score of 7.8.

Nucor's 10-year dividend growth rate is low, at 3.3%, roughly matching inflation.

The company has reduced its share count by 25% since 2017, potentially increasing dividends per share.

Nucor has spent around $8.6 billion on share repurchases and $2 billion on dividends from 2020 to their most recent quarter.

Nucor's cash dividends declined in 2023, but share buybacks increased the overall dividend.

The company is building out various projects across the United States, targeting specific budgets.

Nucor recycles 22 million tons of scrap annually, including 9 million cars, making it a surprisingly green company.

Nucor's steel production method using electric arc furnaces and steel scrap provides a natural hedge against steel prices.

Nucor's financials show a significant spike in revenues related to steel prices following the pandemic.

The company's low payout ratio and focus on share buybacks rather than dividend increases may not be attractive for income investors.

Transcripts

Now I know a lot of you don't like clickbait  titles so you're wanting to know right away  

which company we're going to talk about. Well, you  need to put aside your 7-second attention span and  

try to guess for a second. So this is the largest  steel producer and recycler in America. They're  

a company that's benefited a great deal from the  Biden Administration. They have a business model  

with a natural hedge, so 73% of their inputs are  scrap and that's tied right to steel prices. And  

they've increased their dividend now for 50 years  in a row. So not just paid a dividend for 50 years  

in a row but increased it. So we'll tell you the  name of the company in a second but first, let's  

talk steel. So this is a great diagram that shows  steel production by country in 2022. So America's  

steel production actually peaked in 1973 and  has since declined by 40% as of 2022. Now China  

is the leading producer of Steel in the world  by far and they've dominated steel production  

since 1966. Now here's a list of the largest steel  companies and as you would expect there's lots of  

Chinese names there but look there at the bottom  in 15th Place is Nucor Corporation. That's the  

company we're going to talk about today. Now  when it comes to that return that you saw on  

the thumbnail, that's no joke. So if you start  investing at age 25 and you probably have four  

decades of investment time in the market, so you  would have fared very well with this dividend  

King. So their 40-year return is around 13,000%  compared to the S&P 500 which is at 3600%. So we  

don't do politics here at Nanalyze, so I'm going  to tell you a little story. It's about the land of  

the Nacirema. Now if any of you can figure out  the meaning behind that name, leave it in the  

comments section. This is a classic story they  tell you in a Sociology class. So in this land,  

there's two dominant political parties, the  Horses and the Rhinos. Now the Horses say they  

want to build things better and the Rhinos say  they want to make things great. Now they both  

want the same things, they're saying essentially  the same thing, but for some reason everyone hates  

each other. Now Nucor rose strongly following  the last election in this country based on  

$1.5 trillion dollar that's supposed to be spent  on infrastructure. But there's another election  

coming up and there's certainly questions  about how that election might affect the  

money that's been flowing into Nucor's coffers  because nearly all of their sales are to the  

Nacirema. Now the spike in share price that you  saw on that previous slide which is worth noting,  

this red arrow points to it, that wasn't just an  anticipation of increase demand for steel. When  

we plot out the performance of Nucor against the  S&P 500 over the past four years, we see they've  

returned 279% versus S&P 500 at 75%. Was that  performance merited? Well, it probably was and the  

reason for that is revenues spiked dramatically.  You can see here that in 2021, revenues jumped  

81% for a steel company. That's crazy. So the  labels in this chart by the way are slightly off,  

2020 should be one over to the right, you can  see that big spike, right? Now how long is this  

abnormal growth going to persist? Well, I don't  know when you look at the Infrastructure Act,  

it talks about how you can expect job growth for  a decade, so perhaps that's as long as it will  

take for all this investment infrastructure  to complete. But one thing to note is that,  

yield for Nucor has dropped since the election.  You can see here it used to frequently jump  

up to 4%, even above 4%, but now it's under  2%. And when we look at this company using our  

Quantigence Dividend Growth Strategy, it actually  ranks quite low. So let's look at why. First of  

all, you have the year's increasing dividend.  Since it's a king, it gets a high score there;  

Of course, relatively small company, I think it's  a $38 billion market cap, so that's not going to  

get many points there; yield, it's actually being  dinged on yield because it's so low; payout ratio,  

this is crazy, their payout ratio is somewhere  between 9 to 12%. Very, very low. So they have  

a high score there, of course, because that payout  ratio, a low payout ratio gives you buffer so that  

you can increase the dividend even if you run into  problems with your company; then International  

sales, of course, everything's going to the  Nacirema, so that's minus two; 5-year dividend  

growth, they have a 1.4; but you see 10-year  dividend growth, they're penalized, minus one,  

giving them a total Q-score of 7.8 which is quite  low. One of the reasons why that 10-year growth is  

quite low is because they're just not increasing  their dividend.Here you can see, what, over the  

past seven years or so, it's just been low-single  digits. And it looks like between 2021 and 2022,  

they had a 17% increase. So that's great.  But when you look at the bigger picture here,  

the three-year growth rate, of course, is higher  because of that, at 8.2%. But you look at the  

10-year growth rate for their dividend,  3.3%, that's probably matching inflation.  

It's not very desirable and that's why we ding  that in our strategy. Dividend doesn't seem to  

be a priority for this company, but decreasing  shares outstanding is. This is a good chart here,  

it shows us a couple things. First of all, I  wanted to point to debt. So I know they used to  

have a lot of debt way back when and they've since  paid that down, it's more manageable. So their net  

debt is around 1.3 billion in debt. They still  have a few backed-up cash there. On the left of  

that, you see a 25% reduction to their share count  since 2017. So this is interesting. What you can  

do if you're a Dividend Champion is you could  simply buy back shares and your dividends per  

share would increase because there's fewer shares  total outstanding, so the the pie is being split  

between fewer people. So just the act of buying  back your shares increases dividend. It's somewhat  

intuitive, I suppose, but it's interesting to  see that in action, I'll show you an example  

of that in a second. But here you can see share  repurchases. This is, what, from 2020 until their  

most recent quarter, share repurchases: around  $8.6 billion, dividends paid: two billion. So  

if they just stopped repurchasing shares and they  could use that to pay out more dividends. But that  

doesn't seem to be a priority, as I said before.  Here, when you look at their cash flow statement,  

this is rather interesting. The cash  dividends there you see for 2022 and 2023,  

look: they declined in 2023 but the fact that they  acquired or they're purchasing their shares back  

means their dividend actually increased by just  a bit. And you can also see here: cash provided  

by operating activities is quite high. They need  to make hay while the sun shines and they are.  

So you see their Capital expenditures there,  along the bottom, increasing over time? Well,  

they're building out various projects, here's  a list of them in and places across the United  

States. They show the budget there and what  they're targeting. And that really brings us to  

what this company does, in case you hadn't figured  it out. It's steel, right? And there's various  

forms of Steel. Quite interesting. Look at this,  you know, you have sheet bar, structural plate,  

tubular products, Etc. And that's the segmentation  that you get when you look at their financials and  

the total revenues there. So you see in 2021,  36 billion, then it jumped in 2022, 41, then  

dropped in 2023. So fairly volatile. What's also  interesting is they're using some of that money to  

acquire other companies. I think they acquired a  door company which uses a lot of steel. But looky  

here: they're acquiring some sort of a data center  outfit - Southwest Data Products. Now I don't  

know how much steel goes into Data Centers but,  certainly, it's the healthy margin that they're  

looking at there, and it's probably, you know  overall, a small percentage of what they do. But  

I thought that was rather interesting. Now this  company has a surprising green appeal for being a  

Steel company. So it says here: as North America's  largest recycler, Nucor typically recycles  

22 million tons of scrap annually, including 9  million cars. Steel can be infinitely recycled and  

reused without any quality loss and Nucor's steel  products are made from an average of 77% recycled  

content. That's crazy, right? They should have a  high ESG score, I suppose, though the ESG scores  

are largely useless as we've talked about previous  videos. But Nucor's business model is interesting,  

I alluded to this earlier. They produce steel on  electric arc furnaces that have a lower fixed cost  

structure and they use steel scrap as the raw  material. Now since U.S. steel prices tend to  

follow scrap prices, that gives them a natural  hedge. So their method of production is unlike  

blast furnaces that are used by companies like  U.S. Steel. U.S. Steel's method of producing  

steel has a higher fixed cost structure and they  use iron ore as the main feed and those prices  

don't move alongside U.S. steel prices. U.S.  steel, actually, I know it's confusing, right?  

So U.S Steel, the company, versus US steel. But  U.S. Steel, the company, mines its own iron ore in  

the US and that's a complicated deal there whilst  Nucor's business model is very unique. That's why  

they have a strong balance sheet and they've been  able to achieve that Dividend King track record.  

Now when you look into their financials, you  see some interesting stuff here. Look at raw  

material. So the table on top says Net Sales to  External Customers, right? That's the revenues we  

looked at before. But look at Intercompany sales.  Look at raw materials, that's a table below. They  

do those corporate eliminations, right? So  they're essentially supplying themselves with  

an awful lot of raw material. So this is almost  reminiscent of Exxon's business model, right,  

where they have upstream and downstream stream,  right, and the two provide a natural hedge there.  

So very interesting company. Now I wanted to touch  quickly on the spike in revenues for Nucor and how  

that related to steel prices, and I thought this  was interesting, how steel prices spiked following  

the pandemic. So it wasn't just the Nacarimas  spending $1.5 trillion on infrastructure, it was  

that steel prices went through the roof and that's  because of covid-19 and how steel mills were quick  

to idle their furnaces and curtail production,  instead of risking uncertainty. And then there was  

a resurgence in demand, what do they call it, the  Whiplash effect in Supply chains, is it? And then  

there was a raw material scrap shortage and as  a result, steel mills aggressively raised prices  

to take advantage of the shortage and everybody  made out like bandits. Now just some thoughts on  

Nucor. As a result of that low payout ratio that  they seem to want to keep, the 10-year dividend  

growth is quite low, it's pacing inflation.  Yields under 2%, not growing very fast, that's  

not very attractive for income investors. At a  4% yield, this company might be more interesting  

and certainly give it a higher Q score if they got  that growth going - dividend growth going - which  

they can. They have the low payout ratio that  would allow them to do that but they don't seem to  

want to. And the lack of international revenues is  a big concern, right, they're dinged for that. And  

you have the curse of oil problem, right? So the  idea here is that when you have really good times,  

as they have experienced lately as a result of  all that spending on infrastructure, if they don't  

invest that properly, then there will be bad times  soon, and it looks like they're managing that  

sufficiently. So I'm going to go ahead and leave  you with another interesting video that we did  

on dividend stocks you might enjoy. Do me a favor  and just go into the comments section please and  

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