4/26 Open: $9.35
Market Cap: $2 billion
Let’s be clear: Arch Coal (NYSE:ACI) is no low-risk dividend pick, but a speculative investment. It has a wild 52-week range of $9.05-$35.06, with shares off 35% since mid-February alone. While this stock is under $10 right now, it remains unclear whether ACI stock is grossly oversold — or whether it will continue to drop like a rock.
As a coal producer operating in Appalachia and the Mountain West, there are a host of ugly headlines weighing on this stock — an EPA crackdown on coal, the fact that natural gas is a cheaper and cleaner energy source, and lower demand from Europe and emerging markets. Still, 2012 earnings are forecast to almost double from fiscal 2011, and the company is riding eight straight quarters of year-over-year revenue increases. A little slowdown in momentum doesn’t mean disaster, but it does mean you have to be willing to take on risk if you think Arch Coal will see a turnaround soon.
Of course, that 4.6% dividend is a nice buffer even if shares move sideways. ACI has paid dividends since 1997 and has been reliably paying 11 cents per share for four straight quarters.