Why This Company Remains 1 of the Best Coal Stocks in America

Alliance Resource Partners' geographic focus and low-cost provider status make it one of the only coal stocks worth owning.

Jan 29, 2014 at 9:28AM

Quarter after quarter, Alliance Resource Partners (NASDAQ:ARLP) defies the broad woes afflicting the coal industry in the United States. Alliance Resource seems to produce record results every single quarter, despite the widespread predictions of coal's imminent demise. While other major coal miners are struggling to keep shipment volumes and realized prices afloat, Alliance Resource Partners has no such issues.

That's why investors looking to find the one coal company still thriving in the current environment should look no further than Alliance Resource Partners.

Strong performance across the board
Alliance Resource Partners performed excellently in the fourth quarter as well as in fiscal 2013. Revenue hit a record in the fourth quarter. Earnings before interest, taxes, depreciation, and amortization also grew in the fourth quarter. For the full year, revenue grew 8.4% and EBITDA increased by 18%. In 2013, Alliance Resource Partners generated record revenue, coal sales volumes, EBITDA, and net income.

Alliance Resource posted record results for the 13th consecutive year. Its performance stands in stark contrast to the widespread struggles facing the entire coal industry. Consider how badly Peabody Energy (NYSE:BTU) has performed throughout the fiscal year. Peabody Energy's adjusted earnings crumbled by more than 80% through the first nine months of 2013.

Peabody is set to release its fourth-quarter and full-year earnings on Jan. 30, and management isn't painting a bright picture for the company. Peabody expects its business deterioration to continue in the fourth quarter. Management warns investors that its coal revenue per ton will decline as much as 10% for 2013, and full-year earnings per share will likely fall more than 50% from 2012.

Alliance Resource Partners is able to produce such strong results while others struggle because it operates at a distinct geographic advantage. Alliance Resource Partners generates most of its coal from the Illinois Basin and Northern Appalachian regions, where pricing remains favorable. Alliance Resource Partners has 11 existing mines in these regions, which are producing strongly and contributing to its fantastic results.

This is why Alliance Resource's results are so much better than those from Alpha Natural Resources (NYSE:ANR). Alpha Natural Resources is a major provider of Eastern steam coal, which is an extremely poor-performing segment on the coal market. Alpha Natural's shipments of Eastern steam coal collapsed 31% in the most recent quarter. Through the first nine months of the year, Alpha Natural's coal shipments are down 20%. It's also realizing significantly lower prices. Over the first three quarters, Alpha Natural's coal margin has dropped by half.

Alliance Resource fully expects growth in the current year as well, thanks to favorable pricing, which is expected to continue in 2014. Alliance Resource has 87% of its 2014 coal sales volumes already priced and committed. The company fully expects to post another increase in coal sales and production volumes in the year ahead.

Alliance Resource's distribution: Icing on the cake
Since Alliance Resource Partners is structured as a master limited partnership, it's required to distribute the majority of its cash flow to investors in exchange for a favorable tax structure. That means investors receive a hefty yield in addition to strong underlying growth. Fortunately, management takes the distribution very seriously.

Alliance Resource increases its dividend on a quarterly basis. It did so again after announcing fourth-quarter results. Alliance Resource's new quarterly distribution is 8% higher than it was this time last year. In all, the company has increased its distribution for 23 consecutive quarters.

Most other coal companies are struggling mightily to remain profitable. Alliance Resource Partners doesn't have to worry, since it's reporting record results quarter after quarter. And, the upcoming year is expected to be another one of strong profits. In addition, its hefty distribution, which the company grows every quarter, is simply icing on the cake. Not all coal companies are suffering, and for evidence of that, look no further than Alliance Resource Partners.

More ways to grow your income
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it’s true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor’s portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

 

Bob Ciura owns shares of Alliance Resource Partners, L.P.. The Motley Fool recommends Alliance Resource Partners, L.P.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers