In 2012, roughly a third of the company’s business came from assets not related to coal royalties. While oil and natural gas drilling only made up about 3% of the total, the company has made this segment a priority. Acquisitions and development should fuel rapid growth here.
Natural Resource Partners LP (NYSE:NRP) was able to increase its dividend last year, though it has kept the payout static for six quarters now. That said, using the low-risk, high-margin lease model on both the coal and oil & gas sides of the business puts the company in a good position over the long term. A yield of nearly 10% should be ample reason to stick around while it grows its gas exposure.
Royalties and Pipes
PVR Partners LP (NYSE:PVR), formerly Penn Virginia Resources, also has a large coal portfolio. Like Natural Resource Partners LP (NYSE:NRP), it leases its coal lands out to others and is essentially a toll taker. In 2012, coal represented about 45% of the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA). It expects that to fall to about 20% in 2013.
The rest comes from the company’s midstream assets. Low coal prices and demand are part of the reason for the reduction in coal’s impact, but so too is PVR Partners LP (NYSE:PVR)’s aggressive shift into midstream. Much like the coal royalty business, midstream is a toll taker business. PVR Partners LP (NYSE:PVR) owns the infrastructure that gets natural gas and oil from where it’s drilled to where it can be used–a relatively low risk affair.
Coal’s fall hurt results in 2012, but the midstream segment limited the damage. In fact, the partnership actually increased its distribution in 2012. For income investors looking for a safe way to play both coal and natural gas, this toll taker with its around 8% dividend yield is a good option.
Coal is unloved today despite positive long-term dynamics. That said, natural gas is increasingly important. The two fuels will be fighting for domestic electric market share for years. Investors looking to win no matter which natural resource is on top should consider CONSOL Energy Inc. (NYSE:CNX), Natural Resource Partners LP (NYSE:NRP), and PVR Partners LP (NYSE:PVR).
The article Coal or Gas: How About Both? originally appeared on Fool.com and is written by Reuben Brewer.
Reuben Brewer has a position in Natural Resource Partners. The Motley Fool recommends Alliance Resource (NASDAQ:ARLP) Partners, L.P. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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