Nucor Corporation manufactures and sells steel and steel products. It operates in three segments: Steel Mills, Steel Products, and Raw Materials. The Steel Mills segment produces hot-rolled, cold-rolled, and galvanized sheet steel products; plate steel products; wide-flange beams, beam blanks, and H-piling and sheet piling products; bar steel products, such as blooms, billets, concrete reinforcing and merchant bars, and special bar quality products. It also engages in the steel trading and rebar distribution businesses. Nucor has a capital budget of $1,350,000. Nucor wants to maintain a target capital structure of 40% debt and 60% equity. The company forecasts net income this year to be $800,000.

Required:

1. If Nucor follows a residual distribution policy (with all distributions paid in the form of dividends) and the equity portion of the capital structure is financed using net income, compute the dividend payout ratio?

2. How do you know if a dividend is safe? Discuss.