Reactions from all over the world when steel tariffs doubled
“Strong regret” and “unfair” were part of the responses from trading partners around the world as the US doubled tariffs on steel imports.
Nuclear (NYSE: NUE) and steel dynamics (NASDAQ: STLD) There are many similarities as Nucor Alumni founded Steel Dynamics. This makes sense.
That said, these two US steelmakers are not exchangeable investments. While dealing with the softness of some industries, dividend investors looking to step into the cyclical steel industry will want to carefully consider what Nucor and Steel dynamics have to offer before purchasing either.
This is the quick primer.
What do Nucor and Steel Dynamics do?
From a large selection perspective, the dynamics of nuclear and steel make steel. But the truth is how They make that steel. This is to use an electric Ark Mini Mill. This technology uses electricity and scrap steel to create “new” steel. It is more flexible than old blast furnace technology that uses iron ore and metallurgical coal to create primary steel.
While explosive furnaces can be very profitable during the industry’s upswing, their operating costs can cause red ink to bleed during recessions. Electric Ark Minimills tend to have a more consistent and reliable profit margin throughout the cycle. In other words, the dynamics of Nucor and Steel have powerful core manipulation.
In addition to this strong foundation, both Nucor and Steel Dynamics are building a business selling manufactured steel products. They essentially collect the commodity steel they produce and turn it into a higher margin item with more reliable demand characteristics throughout the steel cycle. This makes it even more robust due to the usual cyclical industry recession.
Nucor and Steel Dynamics are reliable dividend stocks
Once you hear the cyclical words, you need to worry about the consistency of your dividends. However, the strong foundations of Nucor and Steel dynamics on the business side have proven to be extremely valuable to dividend investors. Nucor is the dividend king, with over 50 consecutive years of annual dividends increasing behind it. A much younger company, Steel Dynamics, has increased its dividends annually for the 14th consecutive year. So despite operating in unstable industries, they are reliable dividend stocks.
However, there is an important difference between the two on the dividend. Nucor is a large company that moves slowly and intentionally. That includes dividends. Over the past decade, its dividends have increased by approximately 4% per year on an annual basis. This is faster than historical growth in inflation, so dividend purchasing power is increasing over time. But this is a turtle, not a rabbit.
Steel Dynamics dividends grow at over 10% per year. Compared to Nucor, it’s actually a rabbit. It has a lot to do with the smaller size of steel dynamics. Because it’s easier to grow your business when it’s small than when it’s big and mature.
However, steel dynamics is also a little more aggressive, noting that they have just entered the aluminum market. This is not a big range as its aluminum business uses similar technologies to steel business. But it clearly shows that steel dynamics is a much more aggressive business.
Which steel mill is right for you?
Nucor and Steel Dynamics have an equally attractive steel business. Therefore, core businesses are not likely to be investors’ differentiators. And while both have a solid dividend history behind them, being dividend king clearly gives the nuclear bragging rights. Nucor’s yield is around 1.8% today, which is higher than Steel Dynamics’ 1.5%, both of which are higher than the S&P 500’s average 1.3%.
However, the real difference here, coupled with the aggression of management, can be summed up in dividend growth rates. If you are a conservative income investor, and you like to buy trustworthy dividend stocks when they no longer like them, Nucor could be a better choice.
In particular, Nucor inventory has fallen 40% from its 2024 high. This is actually a fairly normal drawdown of the stock. Steel Dynamics has an attractive growth outlook for the business (as it is smaller and is working on expanding to aluminum) only declines by around 10% over the same span. But if you are looking for rapid dividend growth, iron dynamics may be worth the premium price. That said, both choices own well-run US steel manufacturers.
Reuben Gregg Brewer holds the role of Nucor. Motley’s fools have no position in any of the stocks mentioned. Motley Fools have a disclosure policy.
The Motley Fool is a partner at USA Today, providing financial news, analysis and commentary designed to help people control their financial lives. The content is produced independently of USA Today.
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