Peabody Energy Corporation (BTU), Arch Coal Inc (ACI): Now Is the Time to Focus on Coal Companies

Like Peabody Energy Corporation (NYSE:BTU), Arch Coal Inc (NYSE:ACI) had been solidly profitable until 2012 when it posted a steep loss. However, that was directly related to a non-cash impairment charge of $231 million “due to the decline in benchmark metallurgical coal prices versus 2011.” While the company still lost money for the year even after removing the one-time charges, it has plenty of financial liquidity.

The company’s yield is around 2.30%, but the tough market led to a large dividend cut. That’s a notable risk, but also provides potential upside for income seekers. As results improve, the dividend here is more likely to ratchet higher than at Peabody.

A middle ground

CONSOL Energy Inc. (NYSE:CNX) is a good middle ground for investors who don’t want to bet too heavily on coal as natural gas becomes an increasingly important fuel source. The company is a major coal producer, but also has notable natural gas operations, too.

That’s been a major benefit through the difficult pricing period for coal, allowing CONSOL Energy Inc. (NYSE:CNX) to remain profitable in 2012. The company also managed to increase its dividend slightly last year, which shows the strength of its dual commodity focus. The recent yield was around 1.40%. However, unlike Peabody and Arch, the shares haven’t traded lower this year. So, the turnaround appeal on a coal rebound is notably reduced.

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Coal isn’t dead

Coal is being treated like it is never going to be used again. That’s simply not true and there are some good options in the space for more aggressive investors. Peabody Energy Corporation (NYSE:BTU) is the most globally diversified option, Arch Coal Inc (NYSE:ACI)’s dividend cut could provide upside to its yield on a coal recovery, and CONSOL Energy Inc. (NYSE:CNX) is a safe punt option because of its gas assets.

The article Now Is the Time to Focus on Coal Companies originally appeared on and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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