Monday, March 21, 2016

Coal exit

One of my poorest performing stocks is ARLP. This one has lost much of its value, but keeps paying dividends. I purchased the stock because of its high dividend, understanding the risks. I wrote about this last year.
It paid me well, but it's time to move on for two reasons.

First, there's a hidden cost in this stock. Given that it is a limited partnership, at tax time this requires extra K-1 forms. Since my tax preparer charges by the form, extra forms mean extra cost. Since ARLP is the only stock using that form it eats up my proceeds from this stock. I believe the net income is not worth it, and I'd rather take the loss. The stock already paid me a dividend this year, meaning I'll have to use the form in 2017 when I file my 2016 taxes. My plan is to milk the stock for its dividends this year, and sell after the last payment of the year.

It's not the only reason I'll sell. The coal industry as a whole has been under pressure the past several months. I believe coal to be part of the energy landscape for some time to come, as we nowhere near have renewable capacity to fill the void. Having said that, I believe there will be come consolidation (read mergers) in the industry, and ongoing pressure on revenue. This is of course bad news for dividends. At some point the industry may reach an equilibrium with a few producers owning all the capacity and running a profitable business. In the mean time I plan to exit coal by the end of the year.

No comments:

Post a Comment