The coal industry is on the decline in the U.S., for many reasons. Coal has a significant, negative impact on the environment. And, an abundance of cheap, domestic natural gas has compelled many electric utilities to dump coal. Add to this the rise in demand for renewable energy, and the outlook certainly looks bleak for coal.

However, not all coal companies should be avoided. Income investors looking for high yields should take a closer look at Alliance Resource Partners (ARLP), a coal MLP with a huge 11% yield. Alliance Resource has a significant competitive advantage that fuels its hefty payout, making it one of the best coal stocks for income investors today.

Business Overview & Competitive Advantages

Alliance Resource Partners began mining operations in 1971. It was the first publicly-traded coal Master Limited Partnership or MLP for short. Today, it is one of the largest remaining coal producers in the U.S., with a market capitalization of $2.4 billion. The company generates annual revenue of $2 billion.

While so many coal producers have gone bankrupt in recent years, Alliance Resource Partners continues to post strong financial results. In 2018, Alliance Resource Partners generated record coal sales volumes. Combined with higher coal prices, the company grew revenue by 11.5% in 2018. Net income rose 21% to $367 million for the year.

The biggest reason for Alliance Resource Partner’s resilience in the face of a difficult environment for coal is the company’s tremendous competitive advantages. Alliance Resource Partners operates multiple coal mines, many of which are located near its industrial customers. This reduces transportation time, which helps the company generate higher profit margins than many other coal producers.

Separately, another competitive advantage for Alliance Resource is its focus on mining thermal coal, which is used for electricity generation. It is not heavily involved in metallurgical coal, which is used to make steel. Alliance Resource Partners’ focus on thermal coal provides higher profitability and more favorable economics to metallurgical coal. Indeed, tons sold increased 8% last quarter for the company’s Illinois Basin coal, compared with an 8.4% decline for Appalachian tons sold.

Attractive Income Stock

Alliance Resource recently increased its quarterly distribution by 3.9% from the same quarter last year. With an annualized distribution payout of $2.12 per share, Alliance Resource Partners shares offer a yield above 11% right now.

This is a tremendous yield, as the S&P 500 Index on average yields less than 2%. As a result, Alliance Resource Partners is a very attractive high-yield coal stock. Many coal companies are struggling right now, but Alliance Resource Partners continues to grow. Its competitive advantages have created a strongly profitable business model, and the high yield of 11% appears to be secured with underlying cash flow.