When it comes to the domestic steel industry, two companies stand out: Nucor (NUE 0.26%) and Steel Dynamics (STLD 0.04%). Both are well run and growing, but one is old and largely mature while the other is still relatively young and growing more quickly.
If you are a growth-oriented investor or a dividend growth investor, you'll probably find Steel Dynamics the more attractive choice if you have $1,000 to invest right now. Here's why.
Nucor is a great company
Nucor is one of the largest steel companies in North America. It has a long history of success behind it, highlighted by the fact that it has achieved Dividend King status. You don't increase your dividend for 50-plus years without doing something right. And that's doubly true here, given that the steel industry is highly cyclical in nature.
For most investors looking to add some steel exposure to their portfolio, Nucor is the "safe" choice. Right now is a good time to consider buying, too, because the steel industry is in a bit of a funk, with demand and pricing both relatively weak. This is why Nucor's top and bottom lines have been falling and why its stock is down about 33% from recent highs. Nucor's history suggests that buying during an industry downturn will play out well over the long term.
Steel Dynamics is for more aggressive souls
What if you don't want to play it safe? What if you are willing to take on a little more risk for the potential of more reward?
In that case, you'll find Steel Dynamics more appealing. Founded by former Nucor executives, Steel Dynamics operates in a very similar fashion to its larger peer. Notably, it uses electric arc mini-mills, is vertically integrated, and produces both bulk steel and higher-margin specialty products. It also tends to focus on investing in growth through the cycle so that it comes out of downturns in stronger shape than when it entered. All good things.
However, there are a few important differences. The big one is that Steel Dynamics, with a roughly $18 billion market capitalization, is smaller and younger than Nucor, which has a nearly $29 billion market value. It simply takes less capital investment to move the needle for Steel Dynamics. However, where this growth difference shows up most notably is the dividend.
Over the past decade Nucor's dividend has grown at a rate of around 4% a year. Steel Dynamics' dividend has grown at roughly 17% a year over that same span. There's nothing wrong with playing it safe with a slow and steady industry leader like Nucor, but if you are looking for growth, and particularly dividend growth, Steel Dynamics will likely be the steel stock you ultimately may want to choose.
Another important difference here is the fact that Steel Dynamics is currently working to enter the aluminum business. Using the same playbook it has used in steel, Steel Dynamics thinks it can diversify into a new commodity business and achieve the same kind of success. A similar move isn't on Nucor's radar. If Steel Dynamics' bet pays off, however, there could be materially more growth ahead. With the shares down around 20% from recent highs, Steel Dynamics will be the better choice for more aggressive investors.
What type of investor are you?
Here's what you need to decide when debating whether or not to invest in Steel Dynamics: Are you a conservative investor who prefers to play it more safe or are you looking to maximize your performance even if it requires taking on more risk? If the latter sounds more appealing to you, then Steel Dynamics will be the better steel stock for your portfolio right now.
