Wednesday, December 10, 2008
(Cont'd from above)...

Jim (cont'd):   

We heard about a 40% decline in volumes caused by lower demand and a de-stocking of inventories... Nucor said that it's running at just 50% capacity utilization and, although the company said it expects demand to rebound in the first quarter, there wasn't much to sing and dance about in the preannouncement...

But, today, the stock is in the land of a thousand ball dances...

Now, I have liked Nucor for its accidentally high yield at lower prices but, yesterday, we heard some conflicting things about the dividend. Remember, were focused on this show about whether your dividend is safe or not... that's the theme of the show...

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On the one hand, Nucor raised its regular dividend... something it has done since 1973... two $.35 a quarter which, at these levels, needs a 3.2% yield...

Given the negative preannouncement, we would have to be a little concerned that maybe Nucor shouldn't be raising in an environment where it expects to be just marginally profitable.

Could Nucor's dividend go the way of Freeport-McMoRan (FCX*)'s... and vanish?... Is this another Masco (MAS), where the company keeps raising the dividend, even though it can't be defended?...

I think it's neither... Why?...

Because Nucor also suspended its special dividend of $.20... remember, that's the additional dividend that they give you... a quarter...

This was, in fact, a stealth dividend decrease...

Nucor has a history of paying out big special dividends. one of the reasons why we like it so much... and I think that they have the right dividend strategy for a cyclical company that can't depend on earnings in a bad economy. It keeps raising the regular dividend, but cuts the special dividend as needed. This is actually the second time that Nucor has stealthily cut its dividend this year.

In the first quarter, Nucor raised its regular dividend from $.30 to $.32... but cut its special dividend, so that its total quarterly payout fell from $.61 to $.52 a share...

Now that its special dividend is gone completely, and the total payout is just $.35, I don't know... Is it safe?...

By getting rid of the special dividend, Nucor has a dividend that I think can be defended...

It's possible that that special dividend could come back next year, as Nucor's earnings rebound. Also, don't forget that the steel industry is more consolidated than ever... which should prevent a major fallout in profitability for the well-run producers... and Nucor (NUE) is the best-run...

Now let's talk to Nucor's terrific CEO, a friend of Mad Money, Dan D'Amico, to get a better sense of the quarter so far and how the company is doing...

Mr. D'Amico, welcome back to Mad Money...

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Jim's comments AFTER the interview:     Alright guys, you know that I recommended this stock repeatedly at $28-$32... repeatedly... so now it causes a problem for me for me to come to you and say buy it at $43... I wanted to pull back. But I've got to tell you, this is the Obama steel play. Stick with D'Amico...

Read Jim's next Segment here