Last month, Warrior Met Coal paid a special, one-time dividend of $11.16 per share.
That was a 37% dividend from the closing price of $29.90 the day before.
In May, Arch Coal—which recently emerged from bankruptcy—started paying a 2% dividend.
And Peabody Energy (also freshly out of bankruptcy) announced it would start a dividend program next year.
Coal companies are making so much money right now that they’re offering massive dividends to lure new investors.
The main reason: Coal profits were up 76% this past quarter.
That shouldn’t come as a surprise to regular Daily readers.
Back in June, we told you coal would have a good year.
At the time, I got invited to the grand opening of Corsa Coal’s new mine in Somerset, Pennsylvania, as part of my Rust Belt tour.
While there, I chatted with Corsa CEO George Dethlefsen.
George told me coal mining was about to get a lot more fun because President Trump would reduce regulations on the industry.
And he was spot-on…
We hope you followed our advice at the time… Since then, the VanEck Vectors Coal ETF (KOL) is up 20%.
Now, KOL isn’t a perfect proxy for coal producers—the exchange-traded fund (ETF) holds several non-mining companies, like Teck Resources, that make mining equipment… But it closely tracks the Bloomberg Global Coal Producers Index.
And coal’s run is just getting started…
The Future for Coal Looks Bright
The U.S. economy is strong. And that’s good for coal. When the economy is growing, factories use more power.
For those who didn’t know (or may not recall), there are two main types of coal.
Most people are familiar with thermal coal. Power plants use it to make electricity. It’s the “dirty burning” coal environmentalists are trying to rid the world of.
The other type is metallurgical coal (also called “met” coal). It’s used in the steelmaking process. Met coal is sold to companies that produce coke—a modified version of coal. Steelmakers use coke because it generates intense heat that can melt metals.
As evidenced by the rising prices, demand for both types of coal is strong. As you can see below, both met and thermal coal are up over 100% from their 2015 lows.
These higher prices have helped push profits up.
With the economy not showing any signs of slowing down, coal companies are confident they can reward shareholders.
They’re not just offering massive dividends. Coal companies are also buying back massive amounts of shares.
Peabody is buying back $500 million worth of shares—or over 12% of its outstanding shares.
And Arch Coal just raised its buyback program from $300 million to $500 million. That’s 25% of Arch Coal’s shares.
These rewards are working.
The five biggest coal producers—Alliance Resource Partners, Arch Coal, Cloud Peak Energy, Peabody Energy, and Warrior Met Coal—are up an average of 25% over the past two months.
And this is likely just the beginning. We told you back in June that coal companies had the potential to rise 300%. We stand by that.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
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