Top Coal Companies for the Income Investor

Includes: ARLP, NRP, PVR
by: Michael J. Ray

Being a retiree living on the income markets has been anything but easy the last few years. With bank CDs and US Treasury Bills at record lows, trying to scratch out a living on these instruments has been tough if not impossible. Also the risk of higher inflation hangs over a retiree's head as a constant source of worry. In response, many income investors have been forced out of the bond markets and into the world of equities in search of yield. Typically, their search patterns are pretty predictable, starting with the precious metals and energy markets. Now getting an income yield out of the precious metals market is tough as there are not a variety of choices. Next they typically focus on the energy markets that offer several choices for that desired income. Oil, natural gas, and related partnerships that focus on storage/transportation, all come up on the radar for the income investor. What is often overlooked though is the coal side of the house. There exists several investment options dealing with coal that provide great competitive income yields. Listed below are some of the top choices to consider.

Alliance Resource Partners, L.P (NASDAQ:ARLP): ARLP is a publicly traded master limited partnership that represents the fourth largest eastern US coal producer. The company has locations in five states with nine mining operations, and another one is on the way. For the first quarter Alliance reported a strong increase in coal sales volumes and record prices, which drove revenues to a record $423.3 million, 11% higher than the same quarter in 2010. Management has stated that it continues to see strong customer demand for its coal products, and it expects the 2011 revenue to continue to grow. As a result, ARLP has a yield of 4.9% and the company has a history of raising its distribution regardless of what coal prices do.

Penn Virginia Resource Partners, L.P. (NYSE:PVR): PVR is also a publicly traded limited partnership. The kicker here is that the company also manages a midstream natural gas gathering and processing businesses. When one crunches the numbers, on average the coal side of the house generates roughly 53% of net income. Penn Virginia Resource’s total operating revenue for the first quarter of 2011 was $253.5 million. When compared with a year ago, revenues in the quarter improved by 22.8%. Also PVR announced a 2.1% increase in the quarterly cash distribution for the first quarter so currently the company has a yield of 7.2%.
Natural Resource Partners L.P. (NYSE:NRP): NRP is a master limited partnership that is engaged in the business of owning and managing coal reserve properties. The partnership does not actively mine any of its minerals or natural resources, but rather leases its properties to various operators in exchange for royalty payments. Total revenue at the end of the first quarter was $84.9 million versus $63.5 million in the first quarter of 2010, which reflects a growth rate of 34%. NRP has also recently been on an acquisition phase as it has completed three acquisitions this year and expects to complete another during the next twelve months. NRP has a current yield of 6.1% that should remain safe for the future.
In conclusion, one can see that coal can generate a nice income stream. The investment in coal can also help make one’s energy portfolio a bit more diversified. One item of note is that taxation for partnerships often involves the use of K-1s, which are treated much differently than the regular 1099s. Needless to say, the small summary statement for each partnership above needs to be researched further by each investor to see if it is appropriate for one’s investment portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.