ARLP is being removed from the “Best Dividend Stocks List” as its relative strength is being lowered from 3.5 to 3.
Low natural gas prices have incentivized utilities to switch from coal to natural gas. For ARLP to go up again, almost surely, natural gas prices need to go up too. ARLP always had operational advantages—mines are close to the end user, which reduced transportation costs, and the company has priced and committed more than 90% of its deliveries. It maintains a reasonably strong balance sheet with a manageable 1.27 times total debt to trailing 12 months EBITDA ratio, indicating an ability to continue to pay dividends.
Although the share price depreciation has likely been overdone and unwarranted, we were wrong on this upgrade. The market forces overwhelmed the stock price and ultimately, our original thesis is broken. There are better places to place new money, and adhering to our DARS system, we need to reduce the relative strength— in fact, we should have done this earlier. While we are never making “buy/sell” calls, we don’t feel this is the best place for new money.