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Tempted To Buy The Dip In Coal Stocks? Buy These 3 MLPs Instead

Coal MLPs are the best way to play the dip in coal stocks

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The Best Coal MLPs #1 — Natural Resource Partners

MLPs-coal-stocksDistribution Yield: 8.7%

The recent dividend cut from Natural Resource Partners (NRP) may give investors pause. But the truth is, the dividend cut isn’t as bad as it seems, and it could actually be a huge buying opportunity.

First, NRP holds approximately 2.3 billion tons of proven and probable coal reserves and approximately 500 million tons of aggregate reserves. Instead of mining the product itself, Natural Resource leases its lands to third-party coal producers. In return, the partnership collects royalty payments. Currently, NRP’s lessees control approximately 25% of metallurgical coal production in the U.S.

While business has slowed, it still is pretty profitable for NRP, as it doesn’t have the costs associated with physical mining. Likewise, many of its leases come with take-or-pay contracts.

NRP’s growth and the reason for the cut in its dividend has to do with natural gas, but in a good way. NRP has expanded in owning oil and gas properties through non-working interests. The dividend cut was done to provide more working capital in order to plow deeper into the natural gas space. NRP is working on transforming itself from just a pure coal-player.

Ultimately, that will help NRP become a more diversified energy stock and boost its already hefty 8.7% distribution further into the future.

Article printed from InvestorPlace Media,

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