Tit needs to spend more on infrastructure has been at the forefront recently with a bipartisan bill slowly making its way through Congress. But even if this bill is rejected, many infrastructure needs will have to be met. Spending for improvements and upgrades will continue as needed at the local level with or without federal support.
A federal spending bill would speed up the process, but North America’s largest steel products company does not need that approval to continue to thrive. Nucor (NYSE: NUE) broke all-year profit records, hitting a new annual profit record after just the first six months of 2021. The company believes the strength of the business will continue for the foreseeable future and has recently shown this confidence in announcing its most important new single project ever. .
The Nucor steel plant in Gallatin, Ky., Continues its expansion plans. Image source: Nucor.
Growing up in a greener world
The recently announced $ 2.7 billion new steel mill project is just the latest in a series of ongoing growth initiatives as Nucor strives to capture a larger share of the domestic market higher value sheet and sheet steel products. And the company is also expanding its focus on environmental and climate change initiatives. It has long been the largest recycler in North America, and the new project aims to capture market share with a significantly smaller carbon footprint than its competitors in the Midwest and Northeast.
Nucor has not only started going green with the announcement of the new project. The company had already published a greenhouse gas reduction strategy. Its goal is to reduce carbon dioxide emissions from its steel plant to 77% below the current global average for steel production by 2030.
In a conference call announcing the new plant, CEO Leon Topalian said the company’s greenhouse gas intensity was already less than a third of the global industry average and nearly a fifth of the average of integrated steel producers. Integrated producers who are making steel the old way of using blast furnaces rather than recycling and remelting scrap are where Nucor believes it can take market share with the new project.
The heart of infrastructure projects
Nucor has also focused on the growing renewable energy sector, both as a user and as a supplier. Earlier this year, the company signed a supply agreement with a manufacturer of large-scale solar panel tracking systems. In 2021, it also announced several power purchase agreements to use both wind and solar capacity to supplement its energy needs. Nucor also recently spent $ 1 billion to acquire an insulated building panel manufacturer. Nucor will supply the steel for the panels, which are used for energy efficiency in areas such as distribution warehouses, cold rooms and data centers.
The uses of Nucor’s products go far beyond simple renewable energy infrastructure. The company’s products are a diverse mix of steel and steel products, including sheet and bar, structural sheet and beam used in the construction, automotive and appliance industries, between others.
As a global sector, however, construction represents the largest user of Nucor’s products, accounting for 56% of its sales in 2020. The new plant will aim to increase the company’s market share in automotive sheet products to added value compared to its current level of about 6% of sales. But construction will remain the main driver of the company’s product line.
There are several good reasons to plan to own Nucor shares for the next decade and beyond. Although the company remains focused on growing the business, it has a habit of taking care of its shareholders throughout the process. It has increased its base dividend for 48 consecutive years, and with an increase expected in December 2021, it will rise to 49. A dividend increase in 2022 will place Nucor in the elite equity group known as Dividend Kings.
And the company is managing the expense of this growing dividend by strategically buying back stocks. Until mid-September, Nucor returned nearly $ 2 billion to shareholders between dividends and share buybacks in 2021. The majority of this was in the form of share buybacks, which have were made at an average price of $ 86.15, significantly lower than the recent price.
NUE dividend data by YCharts.
Management prioritizes investing cash flow to grow their business. But at times in the cycle like today, when free cash flow is particularly high, the company plans ahead for shareholder returns. After funding growth investments, future dividend increases become less costly by reducing the number of shares through buybacks. It’s both financially savvy and shareholder friendly.
After having more than doubled since early 2021, Nucor shares have fallen in recent weeks. The company planned for a future of greener steel, higher market share and growing profits. For investors who wish to participate in the execution of infrastructure projects and the pursuit of overall economic growth, this is a winning stock to buy and hold over the next decade and beyond.
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Howard Smith owns shares of Nucor. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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