Alliance Resource Stock: 13.2%-Yielder Reported Record 2023 Results
February 13, 2024
Why ARLP Stock Is an Attractive Option
Alliance Resource Partners, L.P. (NASDAQ:ARLP) operates in an industry that most people think is going the way of the dinosaurs. That is, coal.
But the demand for coal has been on fire lately. In 2022, global coal consumption grew by 3.3% year-over-year to a record-high 8.3 billion tonnes. (Source: “Global Coal Demand Set to Remain at Record Levels in 2023,” International Energy Agency, July 27, 2023.)
For 2023, the International Energy Agency (IEA) had projected that the global demand for coal would rise by 1.4% to a new record high of about 8.5 billion tonnes. (Source: “Coal 2023: Analysis and Forecast to 2026,” International Energy Agency, last accessed February 2, 2024.)
The U.S. may be pivoting to green energy, but it will need a lot of thermal coal to get there. That’s the type of coal used to produce electricity.
Electrification is expected to increase the U.S. demand for electricity from roughly 4.1 trillion kilowatt-hours (kWh) in 2024 to more than 5.5 trillion kWh by 2050. (Source: “Investor Presentation: November 2023,” Alliance Resource Partners, L.P., last accessed February 2, 2024.)
Then there’s India and China. It’s estimated that, in 2023, India’s demand for coal increased by eight percent and China’s demand for coal increased by five percent. Those two countries—along with Indonesia, Vietnam, and the Philippines—account for more than 70% of the world’s global coal consumption. (Source: “Coal 2023: Analysis and Forecast to 2026,” International Energy Agency, op. cit.)
In 2023, the total U.S. coal export volumes were their highest since 2018. That year, the U.S. exported more than 32.5 metric tons of thermal coal. (Source: “US Thermal Coal Exports Hit 5-Year Highs and Top $5 Billion in 2023,” Reuters, February 1, 2024.)
India, the largest coal consumer after China, was the biggest importer of U.S. coal in 2023, at 11.8 million tons. That accounted for 36.3% of the total U.S. thermal coal exports.
These metrics are great news for Alliance Resource stockholders.
About Alliance Resource Partners, L.P.
The first publicly traded master limited partnership (MLP), Alliance Resource is the second-largest coal producer in the eastern U.S. The Tulsa, Oklahoma-based company generates operating and royalty income from the production and marketing of thermal coal to major domestic and international utilities and industrial users. (Source: “Investor Presentation: November 2023,” Alliance Resource Partners, L.P., last accessed February 2, 2024.)
The partnership also generates royalty income from oil and gas mineral interests in strategic regions across the U.S.
Alliance Resource Partners, L.P., which has seven operating underground mining complexes, estimates that it sold between 34.5 and 35.0 million tons of coal in 2023.
As of the end of 2022, the company had approximately 464.8 million tons of proven and probable coal mineral reserves and 1.17 billion tons of measured, indicated and inferred coal mineral resources. (Source: “Royalties,” Alliance Resource Partners, L.P., last accessed February 2, 2024.)
It also owns mineral and royalty interests in approximately 65,000 net royalty acres in premier oil and gas-producing regions in the U.S., primarily the Permian and Anadarko.
In 2023, the company completed $110.9 million worth of oil and gas mineral interest acquisitions. (Source: “Alliance Resource Partners, L.P. Reports Record Full Year 2023 Revenue and Net Income; Declares Quarterly Cash Distribution of $0.70 Per Unit; and Provides 2024 Guidance,” Alliance Resource Partners, L.P., January 29, 2024.)
In December 2023, the company closed on its acquisition of mineral interests in about 2,372 oil and gas net royalty acres for $14.5 million. In the fourth quarter, it purchased about 864 net royalty acres in the Permian Basin for $10.3 million.
Record-High 2023 Revenues & Net Income
In terms of financials, Alliance Resource Partners, L.P. continued its record-setting ways in 2023, reporting milestones for revenues and earnings.
Management reported record-high full-year total revenues of $2.6 billion. Higher coal sales and prices, coupled with lower income tax expenses, helped the partnership report record-high net income of $630.1 million, or $4.81 per unit. Its net income went up by 7.5% from $586.2 million, or $4.39 per unit, in 2022. (Source: Ibid.)
The company also strengthened its balance sheet in 2023, reducing its debt by $22.9 million in the fourth quarter and by $85.0 million during the full year.
Commenting on the results, Joseph W. Craft III, Alliance Resource Partners, L.P.’s president and CEO, said, “Our strategic relationships with our long-standing customers were evident in the 2023 Quarter as we contracted an additional 12.0 million tons for domestic deliveries over the 2024 through 2028 time period at attractive, escalating prices, bringing our committed and priced order book for 2024 to over 90% of expected shipments.” (Source: Ibid.)
He concluded, “Our Oil & Gas Royalty business completed $24.8 million in oil & gas mineral interest acquisitions during the 2023 Quarter and $110.9 million for the 2023 Full Year, resulting in record [barrel of oil equivalent (BOE)] volumes. We plan to continue allocating capital to grow this business line in 2024.”
The outlook for Alliance Resource Partners, L.P. is excellent, with management expecting the company to have a coal sales book in 2024 that’s as strong as it was in 2023. The company also expects to deliver another year of record-high revenues.
Moreover, management also expects the partnership to complete major infrastructure projects in 2024 and to recognize the financial benefits from those projects in 2025. The company expects that these projects will lead its total capital expenditures to go significantly lower and its mines to become more productive.
Quarterly Dividends of $0.70 Per Unit
Alliance Resource Partners, L.P. is a cash cow that rewards buy-and-hold shareholders. Since its inception in 1999, the partnership has paid cumulative cash distributions of about $4.0 billion.
In January, management declared a quarterly cash distribution of $0.70 per unit. (Source: Alliance Resource Partners, L.P., January 29, 2024, op. cit.)
That translates to a yield of 13.18% (as of this writing).
ARLP stock’s payout is safe; the company’s payout ratio is just 58.21% and its distribution coverage is 1.76x. Over the long run, management is targeting a distribution coverage ratio of 2.0x to 2.5x.
Alliance Resource Stock Has 31% Upside Potential
Distributions aren’t the only way Alliance Resource Partners, L.P.’s shareholders have been filling their pockets. ARLP stock’s price has also been doing well lately.
As of this writing, Alliance Resource units are up by 12.8% over the last six months and 10.05% year-over-year.
The recent upward moves by ARLP units are certainly encouraging, and its outlook is even more impressive. For the next 12 months, conservative Wall Street analysts have provided a median target of $28.00 for Alliance Resource stock. This points to potential upside of 31.46%.
Chart courtesy of StockCharts.com
The Lowdown on Alliance Resource Partners, L.P.
Alliance Resource is a tremendous energy company with excellent long-term growth potential. The partnership delivered record-high 2022 and 2023 results, and it expects that momentum to continue in 2024. The company has already booked more than 90% of its shipments for 2024, and it expects to report another year of record-high revenues.
Thanks to its solid balance sheet and robust free cash flow, the partnership is able to provide its unitholders with reliable, high-yield distributions and seek out strategic high-return investments.
This positions Alliance Resource Partners, L.P. (and ARLP stockholders) well for continued success in 2024 and beyond.
