Alliance Resource Partners: A Cheap Stock with a Dividend Kickerhttp://www.fool.com/investing/dividends-income/2010/08/24/alliance-resource-partners-a-cheap-stock-with-a-di.aspx David Meier
August 24, 2010
I believe Alliance Resource Partners (Nasdaq: ARLP ) has the right mix of value and income to soundly beat the market over the long haul.
After all, Vanguard Windsor Fund manager John Neff used that same value-plus-income strategy to beat Wall Street by three points per year for 30 years. That's a lifetime of great returns!
Whether you're new to dividend stocks or a grizzled veteran, Neff's secret formula remains relevant today. Here's how I used it to find Alliance Resource Partners.
A one-two punch of powerful investing
(Analysts' expected earnings growth rate + dividend yield) / price-to-earnings ratio
According to Neff, a company whose total return ratio was 50% greater than that of the overall market stood a good chance of beating that same market, by offering a better value, a higher yield -- or both!
Today, the market has a total return ratio of roughly 0.95. (I used a Shiller P/E of 20.1, a yield of 2%, and two-year estimated earnings growth of 17.2%.) Thus, stocks with total return ratios greater than 1.43 could have market-beating potential.
Using Neff's criteria, the table below clearly shows that Alliance Resource Partners offers more opportunity than its competition: