Last update on 2024-06-27

Alliance Resource Partners (ARLP) - Dividend Analysis (Final Score: 4/8)

Analyze the performance and stability of Alliance Resource Partners (ARLP) dividend policy using an 8-criteria system. Learn about the key findings.

Short Analysis - Dividend Score: 4

We're running Alliance Resource Partners (ARLP) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of Alliance Resource Partners (ARLP) using an 8-criteria scoring system reveals a mixed performance. ARLP has a competitive, but not exceptional, dividend yield and shows an inconsistent, though occasionally high, dividend growth rate. It maintains a sustainable payout ratio below 65%, implying prudent financial management. Dividend coverage by earnings and cash flow indicates potential risk, with several periods showing insufficient coverage. The company has a history of paying dividends for over 25 years but has occasionally cut payments significantly. ARLP's stock repurchase history is unreliable, indicating a weak commitment to reducing outstanding shares and enhancing shareholder value through buybacks. ARLP scored 4 out of 8 on the evaluation criteria, reflecting moderate performance and stability in its dividend policy.

Insights for Value Investors Seeking Stable Income

Given ARLP's mixed performance in the dividend analysis, investors should approach with caution. The sustainable payout and long history of dividend payments are positives but are offset by inconsistent growth and occasional significant cuts. The unreliable stock repurchase history further adds to potential concerns. Income-focused investors might consider ARLP for its long-term commitment to dividends, but those wary of volatility and inconsistent dividend growth should evaluate other options. The stock may be worth a closer look for those who can tolerate some risk, but not for conservative, risk-averse investors.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Explain the criterion for Alliance Resource Partners (ARLP) and why it is important to consider

The current dividend yield of Alliance Resource Partners (6.61%) compared to the historical industry average indicates that ARLP offers a yield significantly below the exaggerated industry figures over the last 20 years, but its yield is competitive within the real market context. The extreme industry figures seem anomalous due to possibly erroneous data points or outlier circumstances.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate criterion examines the rate at which dividends per share have grown annually over a specified period, typically years. It's an important indicator for income-focused investors as it reveals the company's commitment to returning profits to shareholders.

Alliance Resource Partners (ARLP) has had a very inconsistent and volatile dividend growth rate over the last 20 years. On average, the Dividend Ratio stands at 16.68%, but this figure masks a lot of variability. For instance, the data reveals extreme fluctuations such as -81.35% in 2020 and a peak of 275% in 2022. A significant negative growth rate was observed in 2020, which can be attributed to the unusually challenging conditions created by the COVID-19 pandemic. Periods of negative growth, such as -25.31% in 2016 and -5.43% in 2017, further underscore the company's unpredictability in sustaining dividend growth. Despite some extremely high dividend growth years like 2022, it's crucial for investors to be cautious. The inconsistency could be a risk for those relying on dividend income, even though the overall long-term growth appears attractive due to high volatility. Thus, while the growth rate exceeds 5%, its highly erratic nature presents both opportunities and risks.

Average annual Payout Ratio lower than 65% in the last 20 years?

The average payout ratio shows how much of a company's earnings are returned to shareholders via dividends, with a threshold of 65% considered sustainable.

Alliance Resource Partners (ARLP) has an average payout ratio of 46.13% over the last 20 years, which is well below the considered sustainable threshold of 65%. This is a positive trend as it indicates ARLP has been retaining a good portion of its profits for reinvestment into the company, contributing to its long-term growth and stability. Consistently maintaining a lower payout ratio suggests ARLP’s management is prudent in balancing rewarding shareholders and ensuring sufficient capital for the company's development. Furthermore, the payout ratios exhibit variability, with a clear reduction in recent years. Notably, the negative payout ratio in 2020 corresponds to financial stresses during the COVID-19 pandemic, but ARLP quickly rebounded, demonstrated by moderate payout ratios in subsequent years.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings when the company's earnings per share (EPS) are higher than its dividend per share (DPS) because it shows that the company generates sufficient profit to cover the dividends it pays out.

In examining Alliance Resource Partners (ARLP) over the years, the coverage ratio of dividends per share by the earnings per share (EPS) from 2003 to 2023 reveals a mixed scenario. The key years to note are 2003 (0.7963), 2009 (0.5627), and 2013 (0.4287), where over 50% of EPS covered DPS, which is a positive indicator. On the flip side, there are years like 2004 (0.5987), 2018 (0.7383), and 2021 (0.2784), reflecting that dividends were not robustly covered by earnings. Importantly, 2019 and 2020 saw a sharp decline, especially 2020 (-0.3936), indicating a period where dividends were not sustainable due to insufficient earnings. This trend is a mixed indicator and suggests that while ARLP has had periods of well-covered dividends, there are significant intervals of concern where dividends were not adequately supported by earnings. Therefore, this is a concerning trend that calls for closer scrutiny regarding the company's future ability to sustain its dividend payouts.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate that a company generates enough cash from its operations to comfortably pay its dividend obligations. This metric is crucial as it shows whether dividend payments are sustainable.

From 2003 to 2023, Alliance Resource Partners' free cash flow as a proportion of dividend payout amount exhibits significant volatility. For instance, in 2009, the coverage ratio fell to -3.68, meaning the company generated negative cash flow and could not cover its dividends from operations. In contrast, during 2012, the ratio soared to 1.97, indicating a comfortable coverage. Recent years have shown a lower but positive trend with 0.81 in 2023. While the ratios in several years surpass 1.0, implying robust coverage, substantial variability raises concerns about consistent dividend sustainability. Continuous monitoring and stable free cash flow improvements are required to ensure reliable dividends.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends are crucial for income investors, as they rely on consistent cash flows. A reduction of more than 20% may indicate financial instability.

Based on the dividends per share from 2003 to 2023, ARLP experienced two notable declines - in 2016 and 2020. In 2016, the dividend dropped from $2.663 to $1.989, approximately 25%, indicating possible financial strain. Again in 2020, the dividend plummeted dramatically to $0.4 from $2.145, a decrease of over 80%, likely due to pandemic-related challenges. Though ARLP rebounded in 2021, these instabilities highlight potential risks for income-focused investors.

Dividends Paid for Over 25 Years?

Steady dividend payout over 25 years is a sign of a company's strong financial health, stability, and shareholder commitment.

Alliance Resource Partners (ARLP) has demonstrated a consistent increase in its dividend payments over the past 25 years, with the first payout in 1999 and substantial growth until 2023. The company issued its first dividend in 1999 at $0.0575 per share, peaking at $2.663 per share in 2015. Although there was a significant cut to $0.4 per share in 2020 and 2021, likely due to the economic impact of the COVID-19 pandemic, dividends rebounded to $1.5 in 2022 and slightly decreased to $1.4 in 2023. This recovery shows resilience. Overall, ARLP's long-term commitment to dividends is positive, reflecting stability and a solid financial foundation despite occasional fluctuations.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a firm's commitment to returning value to shareholders by reducing the number of outstanding shares, which can potentially increase EPS.

Alliance Resource Partners (ARLP) showed a somewhat unreliable history of stock repurchases over the past 20 years. The number of shares outstanding remained fairly stable from 2003 to 2014, fluctuating slightly but without significant repurchase activity. However, between 2015 and 2018, the shares outstanding increased substantially, jumping to 130,758,169 in 2018 from a stable 74 million range, indicating possible share issuances rather than repurchases during this period, largely diluting shareholders' value. This increase is followed by minor repurchases in 2019, 2020 and then again in 2023, bringing the average repurchase activity to just 3.2402 years out of 20, which is relatively low. Considering these points, ARLP's stock repurchase history doesn't demonstrate a strong or consistent trend, reflecting a mixed approach to shareholder value enhancement through buybacks. Investors might not rely heavily on repurchases as a value return strategy from ARLP.