1 Magnificent Dividend King Stock Down 40% to Buy and Hold Forever

Achieving the highly elite status of Dividend King requires a company to have a good business model. But that's not enough, it also has to have strong execution in both good markets and bad ones. That's exactly what U.S. steel giant Nucor (NYSE: NUE) has done. With the cyclical steel industry pulling back, the stock is down around 40% despite its incredible dividend track record. Now is the time for long-term investors to consider buying Nucor.

What does Nucor do?

Nucor makes steel, which is used throughout the economy. It is a necessity in both the construction and manufacturing industries, forming the backbone of products including buildings, roads, bridges, cars, heavy equipment, and large home appliances. The good news is that the economy can't operate properly without a reliable source of steel. The bad news is that economic uncertainty, and particularly recessions, can lead to reduced demand for steel.

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That's the industry within which Nucor operates. However, there is an important nuance. Nucor makes steel using electric arc mini-mills. These are smaller and highly flexible steel mills that can be more easily ramped up and down with demand. They also make heavy use of scrap steel. Both of these facts help to support Nucor's margins through the steel cycle. And it separates the company from peers that use blast furnaces, which create primary steel from iron ore and metallurgical coal. Blast furnaces are expensive to operate and have to be run at high utilization rates to be profitable.

So, while Nucor is a cyclical business it tends to be a more resilient competitor. On top of this, Nucor has long focused on using its own commodity steel to produce manufactured products, like steel racks and building components, that aren't as cyclical and that have higher margins. So it is more resilient in other ways as well. It is probably one of the best-run steel companies in North America, if not the world.

This Dividend King is deeply out of favor right now

It is the fundamental strength of Nucor's business that has allowed it to achieve Dividend King status. In fact, it is once again leaning into its successful playbook, using the record profits it achieved over the last few years to invest in growth via a $10 billion capital investment program (it's about two-thirds of the way through). The long-term goal of the company is to produce higher highs and higher lows on the earnings front. Or, to put that a different way, it wants to come out of the current industry downturn a better company than when it entered it. It is well on its way to achieving that end.

NUE data by YCharts

But the market is only focused on the uncertainty in the broader economy and the steel market more specifically. This is why Nucor's stock price has fallen a huge 40% over the past year and is currently trading near its 52-week lows. It can be hard to buy a stock when it seems like everyone else hates it, but that can be the best time to buy a cyclical business like Nucor.

NUE data by YCharts

In fact, the current downturn is very deep but surprisingly normal when you look at the stock price history. A decline of 40% in Nucor's shares is usually the point at which investors should be starting to think about adding it to their portfolios. As the chart above shows, history rhymes... the decline might get worse before the stock begins to bounce back. But Nucor's history is also clear that the business is resilient and that has, eventually, shown through in the stock price bouncing back from every pullback.

A Dividend King to buy and hold forever

The one problem with Nucor is its dividend yield. At roughly 2%, the yield isn't perhaps the most exciting yield on Wall Street. But if you like to own the best-run companies and buy them when they look historically cheap, Nucor's stock price decline has made it a very attractive stock to look at today. If you are worried that there's more downside to come as the world works through the geopolitical issues it faces, consider creating a starter position and adding to it if there are further declines. But if you wait too long to buy Nucor you could miss out on the opportunity to add this Dividend King to your portfolio.

Should you invest $1,000 in Nucor right now?

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Reuben Gregg Brewer has positions in Nucor. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.