Warren Buffett's Berkshire Hathaway Reveals Over a Billion Dollars in Recent Trading, and This Dividend King Steel Stock Is on the List

Key Points

• Nucor has increased its dividend for more than 50 straight years.

• The company is a leader in the steel sector.

• It can easily support its growing dividend.

• 10 stocks we like better than Nucor ›

Warren Buffett's Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) recently bought over a billion dollars' worth of new stocks. Among those recent investments was steelmaker Nucor (NYSE: NUE).

Berkshire Hathaway's investment is a huge endorsement for the Dividend King -- Nucor has increased its dividend for 52 straight years, every year since it started paying dividends in 1973. Here's a look at what Buffett's company likely sees in the steel stock and whether it's a worthwhile option for income-seeking investors.

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Betting big on a building boom

Berkshire Hathaway recently invested $1.8 billion in Nucor and two major homebuilders, D.R. Horton and Lennar. The investments in steel and homebuilding seem to reflect a view that economic growth could pick up, since these cyclical sectors tend to benefit from stronger demand during economic expansions.

While Buffett's company could have bought any steel stock, it chose Nucor. One factor that makes Nucor stand out in the steel sector is its pioneering strategy of using smaller electric arc furnaces known as mini-mills to produce steel. These facilities offer several benefits, including lower carbon emissions, increased production flexibility, and reduced costs, partly due to the use of recycled scrap metal in the steelmaking process. They've enabled Nucor to consistently deliver more durable earnings compared to its peers in the steel sector.

Shares of Nucor currently trade at about 13 times forward earnings, making them much cheaper than the broader market (the S&P 500 index fetches around 22 times forward earnings). That's a good price to pay for a company that should see an earnings rebound. Steel prices have risen from around $750 a ton last year to $830 a ton this year, driven in part by the Trump administration's 50% tariffs on steel imports. That price improvement should boost its earnings over the next year as it locks in higher-priced annual contracts with customers.

Additionally, Nucor has multiple growth catalysts on the horizon. It has several capital projects nearing completion, including a rebar micro mill in North Carolina, a melt shop in Arizona, and a coating complex in Indiana. Meanwhile, new semiconductor fabrication facilities, utility industry expansion, and data center development projects should drive strong steel demand in the coming years.

With a relatively low valuation and several growth drivers in place, Nucor appears poised to deliver earnings growth and potentially meaningful share price appreciation over the next few years.

A very durable dividend

Nucor's growth potential isn't its only draw. As mentioned, the company has an incredible record of paying dividends. It's one of only a small percentage of public companies that have earned a place in the elite group of Dividend Kings.

Nucor's dividend yield is about 1.5%, which is above the S&P 500's 1.2% average. The company's robust cash flows and fortress balance sheet strongly support its dividend. In the first half of this year, Nucor paid $258 million in dividends, which is less than a quarter of its $1.1 billion in operating cash flow. It also has $2.5 billion in cash on its balance sheet, providing it with ample flexibility to continue growing its business and dividend.

Its financial strength enables it to invest in growing its operations while delivering on its target of returning a minimum of 40% of its annual net earnings to shareholders through dividends and share repurchases. Nucor's share repurchases have allowed it to retire 27% of its outstanding shares since 2017. That further enhances its ability to increase its dividend per share. Nucor's actual cash outlay for dividends has declined over the past year (it paid $264 million in dividends over the first six months of 2024), even though its per-share payment has continued to rise.

Lots to like about this Dividend King

Given Nucor's reasonable valuation, growth opportunities, and reliable dividend, I can see why Berkshire Hathaway added it to its portfolio. For investors looking to strengthen their income with a durable dividend payer, Nucor is worth a closer look.

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Matt DiLallo has positions in Berkshire Hathaway and Lennar. The Motley Fool has positions in and recommends Berkshire Hathaway, D.R. Horton, and Lennar. The Motley Fool has a disclosure policy.