Shares of Alliance Resource Partners LP (NASDAQ:ARLP) fell as much as 22.2% today. That's not quite news. After all, shares of the coal producer have tumbled 77% in the last year in a nearly uninterrupted slide. But the coronavirus pandemic means this time really might be different.
Local, state, regional, and national lockdowns around the world are likely to reduce electricity demand and industrial output in 2020. For instance, China, the world's industrial powerhouse, has yet to bring all of its manufacturing assets online despite asserting that it has no new local COVID-19 infections. All of that is sure to lower demand for coal, which would weigh on the revenue and earnings of the partnership.
As of 12:09 p.m. EDT, the dividend stock had settled to a 15.7% loss.
Despite efforts to diversify the business, Alliance Resource Partners relied on coal and coal transportation for 95% of total revenue in 2019. The company remains comfortably profitable, but revenue and operating income have declined significantly since 2015 as the world has turned away from coal.
Power generators in the United States are increasingly shuttering or idling coal-fired power plants. In fact, coal-fired power plants spit out the lowest amount of electricity in 2019 since the late 1970s. The U.S. Energy Information Administration (EIA) expects the nation will rely on coal for just 21% of total electricity in 2021 -- the same or less than renewable energy sources.
The coronavirus pandemic is only making things worse. In January, the EIA expected American coal production to decline 14% in 2020 compared to last year. In the first monthly outlook since the pandemic struck, the EIA expects domestic coal production to decline 17% in the year-over-year period. Coal production reflects both domestic consumption and volumes destined for export markets.
Alliance Resource Partners exported 27.8% and 17.9% of total coal tons sold in 2018 and 2019, respectively, so investors might need to brace for further declines.
Investors might be drawn to Alliance Resource Partners due to its nearly 30% dividend yield (technically a distribution yield). However, even when dividends are included in share returns, the stock has delivered a total return of negative 77% in the last five years. Given the broader economic uncertainty, it's probably best to steer clear of this coal producer.