A business connected to Natural Resource Partners LP (NYSE:NRP) Board member Christopher Cline purchased almost 760,000 shares from the company for $15 million (which comes out to a price of $19.82 per share). Natural Resource Partners is a $2.4 billion market cap company which primarily owns (and then leases) coal mines in the United States.
We track insider purchases because insiders start out with a close economic relationship to their company; the principles of diversification therefore suggest that they should avoiding increasing their dependence on it. As a result we think that insider purchases should indicate quite high confidence in the company, and we would add that studies have shown a slight outperformance by stocks that insiders buy. So insider purchases can serve as a screen for companies which might then by worthy of further research. Other insiders were buying shares of Natural resource Partners last summer at prices in the $20 to $22 range (see a history of insider purchases at Natural Resource Partners).
The coal industry can be divided into two verticals, both of which have been experiencing demand pressures. Thermal coal, which is used by utilities to generate electricity, has been increasingly replaced by natural gas as high production has driven prices of the commodity down (though this trend does appear to be slowing). Metallurgical coal is used to produce steel, which in turn depends on global macro conditions; poor numbers in Europe in particular have therefore rippled backwards through the supply chain to impact metallurgical coal producers. Natural Resource Partners’ coal assets include both types of coal, with metallurgical coal associated with just under half of the company’s coal royalty revenues.
Natural Resource Partners pays a dividend yield of about 10%, and the record of dividend payments is very strong. It generally hasn’t cut its payments, and though in recent years the rate of increase has been slow it doesn’t need to increase its dividend at all to be a potential income stock. We would note, however, that the stock price has fallen 21% in the last year. In terms of value, the stock trades at 18 times trailing earnings and 12 times analyst consensus for 2013. That’s not quite low enough to recommend it from a pure value perspective, but investors who put weight on yields should consider the stock.
Let’s look at other coal companies: