Commodity Stock in Focus: Alliance Resource Partners (ARLP)

Mining stocks have received a lot of attention over recent years, as more and more investors have been turning to this sector in search of attractive returns. But as witnessed last year, mining companies in particular can quickly make a turn for the worse, with rising operational costs and falling commodity prices making big impacts on bottom line returns [for more commodity news and analysis subscribe to our free newsletter].

For those not willing to stomach the risk of these volatile companies, we highlight one mining company that may offer investors a more attractive risk/return profile.

Coal Mining in Focus

Alliance Resource Partners L.P. (ARLP) is a master limited partnership (MLP) that engages in the production and marketing of coal across the United States. The company operates 11 underground mining complexes in five states: Kentucky, Indiana, West Virginia, and Maryland. Since its founding in 1971, the firm has grown to become the third-largest coal producer in the eastern U.S.

Alliance Resource Partners’ primary customers are major utilities and industrial users; in 2013, the company sold 38.8 million tons of coal. The company’s primary methods of delivering this coal to customers is by rail, truck and barge.

As of December 31, 2013, ARLP had approximately 1.1 billion tons of proven and probable reserves [see Ultimate Guide To Coal Investing].

ARLP’s Fundamentals

  • Market Cap: $3.62 billion
  • Volume: 44,258
  • P/E Ratio: 11.64
  • Beta: 0.73

Alliance Resource Partners is one of the top five largest coal companies traded in the U.S. Its P/E ratio is relatively low compared to its competitors, making it a more attractive option. The stock’s forward P/E (1 year) is just above 10 [see 5 Commodity Trading Mistakes You Could Be Making].

  • Annual Payout: $2.50
  • Dividend Yield: 5.18%
  • Dividend Growth: 11 Years

The company’s dividend history is perhaps one of the most compelling reasons investors have gravitated towards this stock. ARLP pays dividends quarterly at an annualized $2.50 per share. Based on its current price, the stock yields an attractive 5.18%. Furthermore, the company has increased dividends over the past 11 consecutive years.

Investors should note, however, that ARLP made a 2-for-1 stock split on June 16 of this year.

Performance History

ARLP

So far this year, Alliance Resource Partners shares have gained over 25%. In 2013, the stock gained an impressive 40.49% on the year. In 2012, however, the stock had taken a steep tumble, sliding 17.68%. Over the last five years, its best annual return was in 2009, when ARLP logged in a 72.32% return.

The Bottom Line

While going through the fundamentals of Alliance Resource Partners, investors should keep in mind the impact of falling or rising coal prices on the stock. Overall, however, ARLP may be an attractive option for those looking to not only gain capital appreciation, but also to benefit from the stock’s juicy yield.

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Disclosure: No positions at time of writing.

About Daniela Pylypczak

Daniela Pylypczak-Wasylyszyn is a regular contributor to CommodityHQ.com, where she primarily focuses on commodity producers equities. She is also an analyst for ETFdb.com, where she contributes articles and analysis each week. Since joining the team in 2011, Daniela has quickly grown to be one of the most widely-followed authors in the industry. Her articles are syndicated in a number of online publications, including Financial Advisor Magazine, Fidelity.com, and Yahoo! Finance. Daniela is also a contributor for TraderHQ.com and Dividend.com. Daniela graduated from DePaul University with a bachelor’s degree in finance and economics.
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