Nucor Corporation (NUE) is holding up its history of delivering value to shareholders with a 3.14% dividend and investments in scrap enhancement technology that improves NUE‘s earnings power on annual basis by almost $0.45 a share, says Shneur Gershuni, Executive Director at UBS Investment Bank.
“Because of cheap natural gas prices, Nucor will be turning on a DRI facility later this year. This facility basically allows you to take iron ore pellets with natural gas and produce an output that has a very high ferrous content, which is needed to make steel. That’s what a traditional blast furnace does — they take iron ore and coking coal together to create their steel. Nucor is basically using this technology and taking advantage of cheap natural gas prices to achieve it,” Gershuni said.
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The new technology will lower NUE‘s input costs, improving the company’s earnings power on an annual basis and positioning NUE to perform well for shareholders in addition to its 3.14% dividend, Gershuni says.
“This scrap replacement will lower input costs, which effectively improves their earnings power on an annual basis, by our calculation, by almost $0.45 a share. Nucor is starting it up this year, and there is usual ramp and so forth, and we estimate it will generate $0.17 this year. The point is that its investments have been made during the recession, investing in the company and improving its capabilities and earnings power for a given price for given steel and scrap pricing,” Gershuni said. “Both Nucor and Steel Dynamics actually offer you a pretty nice dividend these days, with Steel Dynamics at 2.83% and Nucor at 3.14%. Not bad when you compare that to the S&P 500.”
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