Coal Master Limited Partnerships (MLPs)
Energy investors should know that a master limited partnership (MLP) is a type of publicly traded investment vehicle. It combines the tax benefits of a limited partnership with the liquidity of a publicly traded company. If you like dividends, you’ll love MLPs because they pass a percentage of their profits directly to investors.
MLPs were set up by Congress to give average investors a way to play natural resources like the big boys. They are, however, limited by United States code to apply only to enterprises involved in the natural resource sector, such as petroleum and natural gas extraction and transportation.
To qualify, an MLP must generate at least 90 percent of its income from oil, natural gas, and coal. What makes them attractive is that, as a partnership, they have to pay out most of their earnings as dividends. And these earnings can be quite substantial. Coal-related MLPs include
Alliance Resource Partners (NASDAQ: ARLP) is a $2.4 billion company in terms of market cap. It had sales of $2 billion in 2012, which were up 15.8 percent over 2011. The company pays a solid dividend of 6.9 percent and is expected to pay $4.43 per share for 2013.
Alliance is the third-largest coal producer in the eastern United States and has ten underground mines in five states with more than 911 million tons of reserves. Its quarterly cash distributions have increased 103 percent since 2008.
Alliance Holdings Group (NASDAQ: AHGP) is a $3.1 billion company in terms of market cap. It expects to pay a $3.05 per share forward annual dividend, which would be a 5 percent dividend yield.
It owns and controls Alliance Resource Management, which is the managing general partner of Alliance Resource Partners (see the preceding bullet), helping it execute its strategy of expanding operations, making productivity improvements, and offering a broad range of coal qualities.
Natural Resource Partners (NYSE: NRP) is a $2.5 billion company with revenue of $365 million, which was up 1.6 percent in 2012 over 2011. The company pays a hefty dividend of $2.20 per share, which should result in a 9.8 percent yield for 2013. NRP owns and manages 2.4 billion tons of coal reserves located in West Virginia, Kentucky, Maryland, Indiana, Alabama, Montana, Illinois, and Virginia.
Production from its properties accounts for 25 percent of U.S. metallurgical coal production and 5 percent of total coal production. The company doesn’t engage in mining but rather leases its properties in exchange for royalty payments that are passed on to investors.
Penn Virginia Resource Partners (NYSE: PVR) is a $2.1 billion company in terms of market value. The company had sales of $987 million in 2012, which was down 3.7 percent from the prior year. Penn Virginia expects to pay $2.20 per share in 2013, which would result in a dividend yield of 9.8 percent.
PVR gathers and processes natural gas and manages coal resources in the United States. The company operates 4,758 miles of pipelines for natural gas and controls 871 million tons of coal reserves located in 11 states.