Reading the newspaper and reading the “green” headlines, you would almost believe that we’d be fossil free within years. The reality of the world’s energy situation is that we are barely keeping up with demand as it is. And demand is growing by the year.
It’s not just the in the United States. Last year American producers exported 59 million tons of coal. Coal exports should increase to almost 80 million tons by the end of this year, and expectations are it will rise to 120 million tons within the next few years.
Currently, more that 48% of the electricity we use is generated from coal. And in the United States alone there are almost 26 coal power plants under construction, with another 39 in various stages of planning.
Coal has been used for more than 10,000 years as a fuel source, and it’s going to be around for quite a bit longer. These “green” breakthroughs are going to take some time to figure out. And until that time, coal is going to be in demand to supply the energy demands of a power hungry world.
We’ve seen coal prices double in the last year from $55 to $100 a ton, and its not hard to imagine them doubling again before the middle of next year.
It’s true that the coal industry is a major polluter, but that’s starting to change. Coal companies are working with carbon sequestration and other ‘zero’ emissions programs to clean up their act. But that too, will take time to change. I’m not weighing in on the moral aspect of an industry that 8 billion tons of pollutants to our atmosphere every year…
And neither should you, because we’re here to make money. Make your money first, and then you can go save the world. So lets get to work.
My latest pick is Alliance Resource Partners (NASDAQ: ARLP). Alliance produces coal used for steam electrical generation. They are the fourth largest coal producer in the United States.
Alliance kicks out a healthy dividend – currently at 4.2% – and more importantly, a sustainable dividend. They’ve consistently raised it by 120% over the last five years.
With a comfortable P/E ratio of 15.11, they’ve also increased their coal production by 816, 000 tons in the first quarter of the year alone.
Arguably this company has had a significant rise in price over the last four months. It’s up over 55% since March. But there’s still a considerable amount of room left for this company to run.
Coal producers reported last month that they expect the coal shortfall of coal to run 25 to 35 million tons for 2008, and even greater shortfalls into 2010. That spells increasing profits for coal in the long-term.
With the market heading south, and our averages tipping over the bear market indicators, stock investments should be based with winners until the markets show a clear bottom. Until then, stick with the winners, and stick with Alliance
Disclosure: Author holds a long position in ARLP