Please ensure Javascript is enabled for purposes of website accessibility

Alliance Resource Partners Stock Keeps Falling

By Maxx Chatsko - Mar 20, 2020 at 12:39PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The dividend stock is no stranger to volatility, but this time might be different.

What happened

Shares of Alliance Resource Partners LP (ARLP 2.39%) 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.

A declining chart on a chalkboard.

Image source: Getty Images.

So what

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.

Now what

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alliance Resource Partners, L.P. Stock Quote
Alliance Resource Partners, L.P.
ARLP
$17.59 (2.39%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
321%
 
S&P 500 Returns
111%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.