Outlook for Bullish Alliance Resource Stock Remains Robust
People might think coal is dirty, but it’s an imperative energy source for the green economy.
Why?
Thermal coal, which also goes by the name “steam coal,” is used to generate both electricity and heat. It might be a major contributor to greenhouse gas emissions, but it’s also responsible for supplying roughly 25% of the world’s primary energy and 40% of global electricity.
The outlook for thermal coal remains pretty solid, too. We can thank electric vehicles (EVs), data centers, and the artificial intelligence (AI) revolution for that. (Source: “Investor Presentation, December 2024,” Alliance Resource Partners, L.P., last accessed January 6, 2025.)
Data center growth is forecasted to exceed $150.0 billion through 2028, fueled by AI, which is actually much more energy-intensive than traditional data center applications. EVs could account for six to eight percent of total electricity demand by 2035, up from 0.5% today. Here in the U.S., electric light vehicle sales are estimated to reach approximately 55% in 2030 and 70% in 2035.
And all of this bodes well for Alliance Resource Partners, L.P. (NASDAQ:ARLP).
Alliance Resource is the largest coal producer in the eastern U.S., serving utility, industrial, and steelmaking customers both domestically and internationally.
In 2023, the company shipped 34.4 million tons of coal. Of that, approximately 80.9% was purchased by domestic electric utilities, 15.7% was sold into international markets, and 3.4% was sold to domestic industrial customers.
Alliance Resource is also a diversified natural resource company that owns a growing portfolio of mineral and royalty interests in strategic oil-and-gas-producing regions across the country.
The company markets its oil and gas mineral interests for lease to major operators in those regions and generates royalty income from the leasing and development of those mineral interests. The partnership also generates coal royalty income from the mineral reserves and resources it owns and leases to its coal mining operations.
Delivers Sequential Improvement in Revenue & Coal Sales
For the third quarter ended September 30, 2024, Alliance Resource Partners announced that revenue had slipped 3.6% on an annual basis, but was up 3.4% on a sequential basis at $613.6 million. (Source: “Alliance Resource Partners, L.P. Reports Third Quarter Financial and Operating Results; Declares Quarterly Cash Distribution of $0.70 Per Unit and Updates Committed & Priced Sales Tons,” Alliance Resource Partners, L.P., October 28, 2024.)
Oil and gas royalty revenue was up 11.9% on an annual basis and 5.8% on a sequential basis at 864 million barrels of oil equivalent.
Net income came in at $86.3 million, or $0.66 per partner unit, compared to $153.7 million, or $1.18 per unit, for the same period in 2023. Alliance Resource ended the quarter with total liquidity of $657.7 million, which included $195.4 million in cash and cash equivalents and $462.3 million in borrowings available under its revolving credit facilities.
Commenting on the results, Joseph W. Craft III, Alliance’s chairman, president, and chief executive officer, said, “We realized another solid quarter of year-over-year volumetric growth in our Oil & Gas Royalties business. We continue to reap the benefits of a minerals portfolio that is heavily weighted towards the Permian Basin, where top-tier upstream operators are actively drilling and completing new wells on our mineral acreage. Additionally, we continued to add to our position in the Permian, successfully closing $10.5 million of ground game acquisitions during the 2024 Quarter.”
Maintains Quarterly Distribution of $0.70/Unit
Thanks to Alliance Resource’s conservative balance sheet and reliable distributable cash flow generation, ARLP stock is able to provide its shareholders with a reliable distribution.
Since its inception in 1999, the partnership has paid cumulative cash distributions of approximately $4.3 billion. In October, Alliance declared a quarterly cash distribution of $0.70 per unit, or $2.80 per share, for a current yield of 10.54%.
ARLP Stock Hits New Record High
Normally, an ultra-high-yield dividend is tied to a share price that is underperforming. That’s because dividend yield and share price have an inverse relationship.
However, this isn’t the case with Alliance Resource.
On November 27, 2024, ARLP stock hit a record high of $29.44 per share. Although it has given up some ground on short-term profit-taking, it still finished out 2024 with gains of approximately 40%.
Currently trading at $26.56 per share, ARLP stock continues to outperform the S&P 500. As of January 6, 2025, it is trading up:
- 7.5% over the last three months
- 11.1% over the last six months
- 38.3% on an annual basis
Chart courtesy of StockCharts.com
The Lowdown on ARLP Stock
As you can see, Alliance Resource Partners is a thermal coal giant that continues to deliver strong operating and financial results. This includes record results in 2022 and 2023.
Its properties are strategically located in close proximity to domestic customers and developing countries in the Middle East, North Africa, and Asia that continue to build coal-fired power generation, which more than helps offset shuttering plants in Europe.
Domestically, significant growth in U.S. electricity demand from EVs, on-shore manufacturing, and data centers (including AI) has delayed the retirement of coal-fired power plants.
Many of Alliance Resource’s largest domestic customers have been active on the contracting side. The company is in the process of finalizing commitments for 21.7 million tons over the 2025 to 2030 time period.
It is also in active discussions with other customers to add to their future commitments, which, if secured, will lift Alliance’s 2025 domestic sales order book to a near historical level of contracted positions.
Looking longer-term, underlying coal demand from non-traditional markets is accelerating, especially in the markets the company serves in the Midwest, Mid-Atlantic, and Southeast.
That’s good news for the 161 institutions that hold 19% of all outstanding ARLP shares. Some of its largest institutional holders include Bank of America, JPMorgan Chase & Co., Morgan Stanley, and Goldman Sachs Group Inc.