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Dividend Investing Stocks (Archived)

ARLP - Alliance Resources Partners L.P.

Dividend investing is a popular strategy with investors seeking an income stream. Dividend investors can be placed into two broad categories.

  1. The growth approach - buy dividend paying stocks with emphasis on the company's ability to grow and increase its future dividend payments (to maximize the future yield).
  2. The yield approach - buy dividend paying stocks at cheap prices (to maximize the current yield).

Dividend investors using the growth approach tend to look for the same basic growth characteristics as found with growth investing, but the stock must also pay a reasonably reliable dividend.

Dividend investors using the yield approach tend to be more concerned with the stock price and the companies ability and willingness to pay a regular dividend rather than its ability to expand.

Sometimes a company will satisfy the requirements for both approaches.

In the January 2015 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.

Alliance Resources Partners L.P.

Alliance Resources Partners L.P. NYSE:ARLP is a small-cap coal mining company and its stock trades around $4 million per day. ARLP was founded in 1971 and has an established history of paying dividends and has a high dividend yield of around 6%.

The key fundamentals for ARLP are shown below.

Growth fundamentals for ARLP

YearRevenueEPS ROEDividendBook ValueEmployees
20035401.34 380%0.530.401870
20046502.14 139%0.671.502020
20058304.40 103%0.834.302300
20069604.75 70%1.006.801600
200710304.60 54%1.128.702600
200811503.64 46%1.337.902950
200912305.27 60%1.518.703090
201016108.75 70%1.6512.403550
2011184010.55 62%1.8817.003830
2012203018.19 95%2.1419.104340

The fundamental data above shows that ARLP has broadly increased its revenue, earnings, book value and employees over the last decade. These are the characteristics of a growth stock. The dividends have consistently increased over the last decade and the stock provides a yield of around 6%. Thus ARLP is a growing company stock that also provides a high dividend yield.

Fundamental Analysis for ARLP:

The return on equity is very good at over 60%. The profit margin (profit to income ratio) is good and averages around 20% over the last decade.

The current ratio (current assets to current liabilities) ranges from 1.8 to 3.2 which indicates that ARLP has ample working capital for its operations.

The debt ratio (long-term debt to tangible assets) averages around 0.8 which means that ARLP carries a moderate amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.

The total ratio (total liabilities to total assets) averages around 60% which means that ARLPs total debt is 60% of its total assets.

The earnings growth for the 2013 fiscal year is projected to grow at 21% (based on the five year earnings growth trend). The revenue is projected to grow at 12% (based on the five year revenue growth trend).

The forward PE ratio is around 4 (calculated from the five year earnings growth trend rather than from forecast earnings). The forward PEG is around 0.3.

The current business valuation would drop to around $80 if ARLPs earnings growth stops (with a 2.9% ten year Treasury bond yield).

ARLPs book value is around $19 and small-cap stocks when they run into financial problems can easily see their stock price drop to halve of their book value.

The bankruptcy risk can be calculated using the Z-score. ARLPs Z-score is 1.6 which means ARLP is a moderate bankruptcy risk stock.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 18-Dec-2013 and this allows the reader to see how the stock performed over the next year.

ARLP had its 2013/09 quarterly results released prior to 18-Dec-2013 and this information is available for the analysis. The 2013 Q3 earnings showed a decline of 12% over the same quarter from a year ago (2012 Q3). The 2013-Q3 dividend is $0.577 for the quarter which is a 11% increase over the same quarter from a year ago (2012 Q3).

Overall the fundamentals are quite good with this small-cap stock which has a reliable history of paying a regular dividend. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in ARLP on the 18-Dec-2013 would give a purchase price of around $37.

The stock price performance is shown below in Chart 2. along with the annual earnings year to year growth. The stock chart is adjusted for splits and dividends.

Chart 2. Stock chart with earnings for ARLP

weekly Chart ARLP

As shown in Chart 2. above, ARLPs gained around 12% over the next year including dividends. ARLPs 2013 annual earnings declined by 60% over the 2012 fiscal year. ARLPs 2013 dividends were $2.33 which is a 9% increase over the 2012 fiscal year.

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