Revisiting the Best-Run Coal Company in America: Alliance Resource Partners L.P. (ARLP)

After a tough 2012 for the coal industry, finding a great company within that troubled sector seems like a daunting task.  However, there happens to be a shining diamond in the rough:  Alliance Resource Partners L.P. (NASDAQ:ARLP).

A Testament to Terrific Management

It’s no secret that coal was under fire in 2012.  The combination of the drop in natural gas prices and fears of stricter federal regulation took its toll on America’s coal companies.  Investors feared that utility customers would soon switch to non-coal sources of power, and headed for the exits.

As a result, coal stocks have performed brutally in recent years.  Alpha Natural Resources, Inc. (NYSE:ANR) has seen its market value drop by 85% since the beginning of 2011.  Over the same time frame, fellow coal miner Peabody Energy Corporation (NYSE:BTU) saw its share price decline from more than $70 per share to its current level of $23.

Yet in early February, Alliance Resource Partners reported promising fiscal fourth-quarter and full-year results.  Even amid a difficult pricing environment for coal, the company performed admirably.  Alliance Resource Partners reported quarterly and full-year revenue increases of 16% and 10%, respectively, versus the prior year.  The company’s revenues set a new record, as did its tons sold and tons produced.

In addition, there’s reason to be optimistic for the future despite the tenuous environment for coal.  Management expects 2013 to deliver record results yet again.  Amazingly, more than 95% of Alliance Resource Partners’ 2013 business is priced and contracted.  The company expects sales growth of 6% to 9% in 2013 versus its 2012 total.  Further sales and production growth will be realized through the company’s plans to construct a new mine in southern Indiana, and it’s constructing a new mining complex in southern Illinois.

Fantastic Commitment to Shareholders

Perhaps my favorite reason for owning Alliance Resource Partners is its steadfast policy of increasing its distribution to shareholders.  When I last wrote about the company, I predicted the company would raise its payout after reporting its most recent results, since the company had recently begun a pattern of increasing its distribution quarterly.

Indeed, Alliance Resource announced an increase in its distribution of 2.1%, to an annualized level of $4.43 per share.  The company’s dividend stands 12% higher than a year ago.  At current prices, the stock yields an impressive 7%, a yield significantly higher than both competing coal companies and the broader market.