Hey There Income Hunters,
Another day and more new all-time highs for old energy.
And that’s after the king of energy was left for dead because of the environmental, social, governance (ESG) crowd.
I mean having zero carbon emissions sounds great — and I am all for it — but what happens when energy consumption in emerging economies soars as during the global reopening?
The ESG misfire is creating a massive energy crisis. The net-zero-by-2050 models all built in zero energy growth consumption in energy markets.
Meanwhile the energy producers and service providers could not attract any capital for new projects, so investments in oil, gas and mining are over $2 trillion below what they were just 6 years ago …
Nobody wanted to talk about the 2020s resembling the 1970s … However, the burgeoning energy crisis is certainly looking like it could be very similar.
For #IncomeHunters, there are tropical winds behind the sails of oil, gas and coal trades — and this party is just getting started …
Today, I’ll show you a company that is just killing it. They have so much cash flow they could hit double-digit dividend yields soon.
Alliance Resource Partners (Ticker: ARLP)
ARLP is a fossil fuel company and happy to stay just the way they are.
They saw what was coming over the past year and to stay alive during a miserable 2020, they suspended their dividend …
Of course, that hurt their valuations, but they came back strong in 2021 and in the first half of the year they reinstated their dividends.
In the second half they tripled their free cash flow and are sitting in such a strong position that they could soon take their dividend yield over 10%.
Let’s take a look at their technical setup …
2021 has been a consistent climb and during the past week volume has picked up and taken out the key $10 level opening the door for a march to $15 …
Met Coal Is Heating Up
Central Banks around the world know they will need to focus on fiscal stimulus — interest rates are at zero and QE tapering is the new buzz word with inflation soaring.
Infrastructure spending will demand more steel, which means strong demand for metallurgical coal.
As you can see in the chart below, the price of coal has just started to take off and the reopening trade is just beginning …
I like a trade for the move towards $15 and found a decent call spread that offers a low risk/high reward ratio:
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Buy ARLP Nov. 19 10/12.5 CS for $.85
Here is the risk profile and I like holding the trade into the November expiry to capitalize on the likely passage of the spending bill in early November …
Bring It Home
My portfolio is humming as my Cleveland Cliffs (Ticker: CLF) and SPDR Select Sector Energy ETF (Ticker: XLE) positions are up 40% and 50%, respectively.
I am holding to give them a chance to expire above the high strikes of the call spreads to maximize my returns. If they expire above the high strikes, I will capture returns over 200% …
I do have resistance on XLE around the 52.75 level, so I added to my S&P 500 VIX Short-term Futures ETF (Ticker:VXX) long Oct. 08 25.5/26.5 call spread. The next two weeks should present enough uncertainty to see a small pull back in the indexes.
Have a great day and as always …
Live and Trade With Passion My Friends,
Griff