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ARLP or Alliance Resource Partners, L.P. is one of the biggest coal producers in the United States by market capitalization.
As of Oct 2021, Alliance’s market capitalization reaches nearly $1.5 billion USD, only behind that of Peabody Energy (BTU) and is as big as that of Arch Resources (ARCH).
Aside from coal minings, Alliance is also involved in oil and natural gas production but these operations contribute less than 10% of revenue to the company.
ARLP pays out cash dividends or cash distributions on a quarterly basis and is a strong dividend payer in the energy industry.
The company has been paying cash dividends since 1999 without fail which means it has been a dividend stock for more than 20 years.
While Alliance’s cash distributions to unitholders have been on a rise, it suffers a setback in 2020 in which the company had dramatically cut the payout, due primarily to the COVID-19 disruption to the energy industry.
Here is an excerpt extracted from ARLP’s 2020 annual report regarding the company’s dividend suspension in 2020:
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Dividend Policy
In response to the disruptions to the economy and the uncertainty surrounding the COVID-19 pandemic, the Board of Directors of ARLP’s general partner began suspending cash distributions to unitholders with the First Quarter and has continued through the quarter ended December 31, 2020.
As a result, Alliance’s cash distribution to unitholders occurred only in the 1st quarter of 2020 and the company has suspended the rest of the payouts in 2020.
In addition to cash dividends, ARLP also suspended stock or unit buyback in fiscal 2020 indefinitely.
The good news is that Alliance has reinstated the suspended dividends in fiscal 2021, starting in the 2nd quarter, paying out a dividend rate of as much as $0.10 USD per share.
While ARLP’s current dividend payout may look laughably small compared to its historical values, I believe the company will raise the cash payout significantly for the rest of 2021, driven primarily by an improving outlook and rising cash flow as well as higher profitability.
In this article, we will look at Alliance Resource Partners’ several dividend metrics which include the historical dividend rates, dividend yields and dividend to free cash flow as well as earnings payout ratio.
Other than the dividend metrics, we also will look at ARLP’s 2021 outlook which includes the projected revenue and earnings as well as the coal sales volume.
Let’s go take a look!
ARLP’s Cash Dividend Topics
1. Distribution History And Yield
2. Higher Coal Volume In 2021
3. Projected Revenue And Earnings In 2021
4. Forward Dividends 2021
5. Dividends To Earnings Payout Ratio
6. Dividends To FCF Payout Ratio
7. Fordward Dividends Yield 2021
8. Summary
ARLP’s Dividend History And Yield
| Fiscal Year | ARLP’s Dividend Per Share Declared ($ USD) | ARLP’s Average Share Price ($ USD) | ARLP’s Dividend Yield (%) |
|---|---|---|---|
| 2018 | $2.070 | $19.00 | 10.9% |
| 2019 | $2.145 | $16.30 | 13.2% |
| 2020 | $0.40 | $4.44 | 9.0% |
| 2021 YTD | $0.20 | $7.34 | 2.7% |
Let’s first look at Alliance’s most recent cash distribution history and yield as shown in the table above.
As shown, ARLP’s dividend rates were much higher back in 2018 and 2019, clocking in at $2.070 and $2.145 USD per unit share respectively.
These rates produced a dividend yield that easily exceeded 10% on an annual basis.
While those were the good times in 2018 and 2019, Alliance started to significantly cut its cash distribution in 2020 and the yearly rate dropped to only $0.40 USD per share.
In 2020, Alliance’s business conditions were negatively impacted by the COVID-19 outbreak because of the lower energy demand.
As bad as 2020 may seem, ARLP’s business outlook actually improves significantly in 2021 when the demand for energy unexpectedly recovers and even surges.
Despite the much better outlook in 2021, Alliance’s cash dividends year-to-date came in at only $0.20 USD per share, a paltry amount compared to that of 2018 and 2019.
I believe Alliance will significantly raise the cash distribution by the end of 2021 to around $0.80 USD per share, yielding as much as 11% on average in 2021.
Here is why.
ARLP’s Higher Coal Volume In 2021
| Fiscal Year | Illinois Basin Sales Tons (In Millions) | Appalachia Sales Tons (In Millions) | Total Sales Tons (In Millions) |
|---|---|---|---|
| 2018 Reported | 30.1 | 10.4 | 40.5 |
| 2019 Reported | 28.5 | 10.8 | 39.3 |
| 2020 Reported | 19.1 | 9.1 | 28.2 |
| 2021 Projected | 22.85 | 10.05 | 32.9 |
Alliance has guided for a recovered coal shipment volume in fiscal 2021 compared to 2020 as shown in the table above.
In fiscal 2021, ARLP expects to ship a total of 33 million tons of coal compared to 28 million tons in 2020, an 18% growth year-over-year.
Both Illinois Basin and Appalachia coal sales volumes are expected to be showing improvement in fiscal 2021 compared to that of 2020.
In this aspect, Alliance projects to ship 23 million tons and 10 million tons of coal from the Illinois Basin and Appalachia mining operations, respectively.
While these figures are much better than that of 2020, they are still down significantly from the historical highs reported back in 2018 and 2019.
Nonetheless, ARLP’s growing coal sales volume in fiscal 2021 shows that a recovery is happening.
A higher coal sales volume may boast not only Alliance’s profitability but also the firm’s free cash flow which we will cover in subsequent discussions.
Therefore, Alliance may significantly boost the cash distributions by the end of 2021 given a much higher coal sales volume in 2021 compared to that of 2020.
ARLP’s Projected Revenue And Earnings 2021
| Fiscal Year | ARLP’s Revenue ($ Millions) | ARLP’s Earnings Per Share ($ USD) |
|---|---|---|
| 2018 Reported | $2,003 | $2.74 |
| 2019 Reported | $1,962 | $3.07 |
| 2020 Reported | $1,328 | -$1.02 |
| 2021 Projected | $1,520 | $1.26 |
| 2022 Projected | $1,430 | $0.95 |
From the perspective of analysts, Alliance’s revenue and earnings per share are estimated to come in at $1.5 billion and $1.26 USD per share for fiscal 2021, a much higher value compared to that of 2020.
Therefore, analysts are expecting a much better revenue and profitability for ARLP in fiscal 2021 compared to the prior year.
While the revenue estimate is only slightly higher, the earnings estimate comes in at a massive recovery as ARLP is expected to turn around in terms of profitability, from making a loss in fiscal 2020 to making a profit in fiscal 2021.
That said, Alliance’s higher profits in fiscal 2021 is a compelling reason for the firm to raise the cash dividends to the desired amount of at least $0.80 USD per share.
ARLP’s Forward Dividends In 2021
| Fiscal Year | ARLP’s Dividends Per Share ($ USD) | ARLP’s Shares Outstanding (In Millions) | ARLP’s Cash Payment For Dividends ($ Millions) |
|---|---|---|---|
| 2021 | $0.80 | 127.2 | $102 |
My estimation is that Alliance can afford a minimum of at least $0.80 USD per share in cash distributions for shareholders for the entire fiscal 2021.
The amount of $0.80 USD per unit is inclusive of the $0.20 USD per share that ARLP has already paid in 2Q and 3Q 2021.
In other words, ARLP will pay an estimated value of $0.60 USD per share in the 4th quarter of 2021.
Based on the entire amount of $0.80 USD per share in distribution, Alliance’s total cash payment for the dividend will come to about $102 million on the back of 127.2 million shares outstanding as shown in the table above.
Alliance can definitely return $100 million of cash to unitholders for fiscal 2021 as depicted in the following payout ratio.
ARLP’s Dividends To Earnings Payout Ratio
| Fiscal Year | ARLP’s Dividends Per Share ($ USD) | ARLP’s EPS ($ USD) | Dividends To EPS Payout Ratio (%) |
|---|---|---|---|
| 2018 Reported | $2.070 | $2.74 | 75.5% |
| 2019 Reported | $2.145 | $3.07 | 69.9% |
| 2020 Reported | $0.400 | -$1.02 | -39.2% |
| 2021 Estimated | $0.80 | $1.26 | 63.5% |
Based on the estimated EPS of $1.26 USD per share for fiscal 2021, Alliance’s dividend-to-earnings payout ratio will clock in at 64% if the company declared as much as $0.60 USD per share in 4Q 2021, making the total amount to be $0.80 USD per share.
In my opinion, this level of payout ratio is manageable for ARLP as the firm has had this payout ratio in the past, for example, in 2018 and 2019 according to the table.
Moreover, ARLP’s coal and other mineral interest recovery are expected to last beyond 2021 as reflected in the moderating revenue and earnings growth in 2022.
Therefore, from the earnings perspective, Alliance can afford a cash distribution of as much as $0.80 USD per share for the entire fiscal 2021.
ARLP’s Dividends To Free Cash Flow Payout Ratio
| Fiscal Year | ARLP’s Dividends Paid ($ Millions) | ARLP’s Free Cash Flow ($ Millions) | Dividends To FCF Payout Ratio (%) |
|---|---|---|---|
| 2018 Reported | $276 | $461 | 59.9% |
| 2019 Reported | $278 | $209 | 133.0% |
| 2020 Reported | $52 | $280 | 18.6% |
| 2021 Estimated | $102 | $326 | 31.2% |
Alliance has guided for a capital expenditure of only $130 million for fiscal 2021 according to the 2Q 2021 quarterly release, thereby bringing the amount of free cash flow to $326 million.
From the perspective of free cash flow, ARLP’s cash payment of $102 million for the dividends looks even more affordable.
As shown in the table, ARLP’s cash dividend to free cash flow payout ratio comes in at only 31% in fiscal 2021, a much lower figure compared to that of 2018 and 2019.
Therefore, if Alliance could afford a distribution that reached more than 60% of free cash flow in the past, the company certainly can afford one which clocks in at only 30% of free cash flow in fiscal 2021.
In short, ARLP’s massive free cash flow projected for fiscal 2021 is more than enough to cover the estimated cash distribution which amounts to only $102 million.
Again, this is another compelling reason for Alliance to raise the distribution payout in fiscal 2021.
ARLP’s Fordward Dividends Yield 2021
| Fiscal Year | ARLP’s Dividends Per Share ($ USD) | ARLP’s Average Share Price ($ USD) | Dividends Yield (%) |
|---|---|---|---|
| 2018 Reported | $2.070 | $19.00 | 10.9% |
| 2019 Reported | $2.145 | $16.30 | 13.2% |
| 2020 Reported | $0.40 | $4.44 | 9.0% |
| 2021 Estimated | $0.80 | $7.34 | 10.9% |
At a dividend rate of $0.80 USD per share for fiscal 2021, Alliance’s cash distribution yield will come to about 10.9%, a massive figure based on the average share price of $7.34 USD.
Therefore, if you had bought Alliance’s units in 2021 at an average price of $7.34, your forward dividend yield will come to a massive 11%.
Of course, this figure is based on the assumption that ARLP will raise the cash distribution to $0.60 USD per share in fiscal Q4 2021.
Conclusion
ARLP or Alliance Resource Partners is a strong dividend payer in the energy sector, with a payout that yielded more than 10% in the past.
However, ARLP has temporarily cut dividends to only $0.40 USD per share in fiscal 2020 but has reinstated the distributions in fiscal 2021 2Q.
Even at a paltry amount of $0.40 USD per share, the yield still came to an average figure of 9.0% thanks to ARLP’s plummeting share price in 2020.
Going into 2021, ARLP’s coal sales volume is projected to recover, so will revenue and profitability.
Analysts have estimated a much higher earnings growth despite a moderating revenue in fiscal 2021.
With the recovery in place in 2021, Alliance’s dividends are estimated to come in at $0.80 USD per share, giving investors a forward dividend yield that averages more than 10%.
Based on the dividend to earnings and free cash flow payout ratio, this dividend rate is easily within the reach of ARLP as the historical payout ratio was much higher.
Therefore, if Alliance could afford such distribution in the past, it can certainly afford one now.
Credits and References
1. Alliance Resource Partners’ financial figures were obtained and referenced from the company’s financial statements which are available at the following links:
a) ARLP Investors Relation
b) ARLP’s historical closed price – Yahoo Finance
c) ARLP’s Analysis – Yahoo Finance
2. Featured images in this article are used under creative commons license and sourced from the following websites: burnin’ ring o’ fire and Natural Gas Flaring.
Statistics For Other Companies
Disclosure
The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.
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