A Closer Look at Coal Limited Partnerships

We like coal as a “real asset” and use it in our portfolios as an income source through master limited partnerships. We generally put the LPs in tax deferred accounts, because the distributions are not tax advantaged the way ordinary corporate dividends are treated.

The coal LPs currently have yields in the 5% to 6% range and help up keep our overall portfolio yield at acceptable levels.

These securities fit into our commodity asset class and round out the types of commodities that are found in commodity index products, such as (DJP), the Barclays commodity ETN. It follows the Dow Jones/AIG commodity index that includes oil but not coal.

We also add Cameco (CCJ), the primary uranium producer, in our commodity class, giving us exposure to the four key energy sources (oil, gas, coal and uranium) .

There are three coal LPs that we evaluate: Alliance Resource Partners (ARLP), Penn Virginia Resource Partners (PVR) and Natural Resource Partners (NRP).

The 1-year chart below shows the performance of each LP versus SPY (the S&P 500 ETF).

The table below presents key information about each of the LPs. Note that the useful life of their reserves is substantially longer than the reported useful lives of most oil companies.

Disclosure: At the time of this writing author owns ARLP, DJP, and CCJ