Alliance Resource Partners, L.P. (NASDAQ:ARLP) operates in the coal industry, which has been going through a rough phase over the last few years. All companies in the industry suffered because of the slowing coal demand and low average coal price. Alliance Resource Partners, L.P. (NASDAQ:ARLP) was one of the least affected companies in the industry.
Alliance Resource Partners, L.P. (NASDAQ:ARLP) is the nation’s first publicly traded Master Limited Partnership (MLP) involved in production and marketing of coal.
Its stock has been quite volatile over the last one year, but has appreciated more than 25%. While its competitors are struggling to even post profits, Alliance Resource Partners, L.P. (NASDAQ:ARLP) has not only been posting profits, but also distributing a large part of it to its shareholders. The stock seems to have upside potential due to a number of reasons.
Rising dividend yield
The company has consistently increased its dividends. It has increased its dividend by around 320% over the last ten years and by around 90% over the last five years.
It recently raised its dividend again by around 2% to $1.13. The trailing dividend yield for the company is 6.61%, while the forward dividend yield is 6.70%. This is very high as compared to the dividend yield for the industry, which is 3.41%. The five year dividend growth rate has been a phenomenal 13.60%. The payout ratio is also high at 68% as compared to around 39% for the industry. The stock is expected to continue distributing dividends to its investors in future as well, and therefore, is suitable for investors looking for regular cash flows.
Strong quarterly earnings
According to its recently released quarterly earnings, the company’s revenue increased 23.6% to $548.1 million, while its EBITDA increased 31.7%. Net income also rose 24.1% to $102.9 million, resulting in an EPS of $1.95. This beat the consensus estimate of $1.36 by a long margin. The unit sales of the company increased 24.1% to 9.7 million.
This performance was due to increased coal production and increased average sales price. Management expects the increase in coal production to continue in 2014 as well. The company has substantial coal reserves and a major part of it has already been contractually confirmed for the next few years by the buyers. This indicates further stock price appreciation potential.