Alliance Resource Partners Holds Steady with $0.70 Dividend Amid Challenging Coal Markets

Alliance Resource Partners, L.P. (ARLP) has reaffirmed its commitment to unitholders by declaring a $0.70 per unit quarterly dividend for Q1 2025, maintaining its payout at the same level as the prior three quarters. This decision, while a vote of confidence in its financial resilience, arrives against a backdrop of declining coal sales, price pressures, and macroeconomic headwinds. Let’s dissect whether this dividend is a sign of strength—or a precarious balancing act.

Ask Aime: "Will ARLP's dividend signal strength or precarious balancing act?"

Dividend Sustainability: A Delicate Tightrope Walk

ARLP’s dividend of $2.80 annually remains intact despite a 53.1% year-over-year drop in net income to $74.0 million in Q1 2025. The payout is funded by Adjusted EBITDA, which fell to $159.9 million in Q1—down 33% from the same period in 2024. However, sequential improvement in Q1 (up 29% from Q4 2024) suggests cost-cutting and operational efficiency gains are stabilizing cash flows.

A critical question: Can ARLP sustain this dividend over the long term? The company’s $514.3 million in liquidity (including $81.3 million cash) provides a buffer, and its net leverage ratio of 0.63x leaves room for debt management. Yet, its reliance on coal—a sector facing regulatory and market headwinds—remains a red flag.

Coal’s Rollercoaster: Volumes, Prices, and Commitments

ARLP’s coal sales volumes dropped 10.4% year-over-year to 7.77 million tons in Q1, with Appalachia operations hit hardest (-22.7%). Prices also fell: Illinois Basin coal averaged $60.29/ton (-4.2% Y/Y), while Appalachian coal dropped 8.5% to $60.29/ton.

However, the company has secured 96% of 2025 coal volumes under fixed-price contracts, reducing revenue volatility. Management also highlights 17.7 million tons committed through 2028, a sign of long-term demand. Yet, 2026 coal prices are expected to decline 4–5% from 2025 levels, a looming threat to margins.

Oil & Gas Royalties: A Silver Lining

While coal struggles, oil & gas royalties delivered a 16.8% sequential EBITDA jump to $29.9 million, driven by higher crude prices and production volumes. This segment now accounts for nearly 18.7% of total Adjusted EBITDA, up from 12% in Q1 2024. The rise underscores ARLP’s diversification efforts, though oil prices remain volatile.

Risks Lurking in the Shadows

1. Trade Policy Uncertainty: Potential tariffs or trade disruptions (e.g., “Liberation Day” tariffs) could further strain margins.
2. Regulatory Pressure: U.S. policies favoring renewable energy may limit coal’s long-term demand, even with recent executive orders supporting grid reliability.
3. Cryptocurrency Exposure: ARLP’s $42.3 million in bitcoin holdings are volatile assets, adding unpredictability to its balance sheet.

The Bottom Line: A Dividend to Defend, But Caution Ahead

ARLP’s dividend declaration is a bold move, signaling management’s belief in its ability to navigate challenges. The strong liquidity and contractual commitments provide near-term stability, while oil & gas royalties offer a hedge against coal’s decline.

However, investors must weigh this against the structural risks in the coal sector. With coal volumes and prices pressured, and 2026 guidance pointing to further margin compression, the dividend could face strain if coal demand falters or commodity prices collapse.

Final Verdict: ARLP’s dividend remains sustainable for now, but the company’s fate hinges on coal’s uncertain future. For income investors, this is a hold—not a buy—until coal fundamentals stabilize or the company diversifies further into higher-growth energy segments.

In a sector where “black gold” is increasingly overshadowed by green energy, ARLP’s resilience will require more than just steady dividends—it will need innovation and adaptability.