Investment Income Idea

Twice recently we’ve warned against chasing yield.  On Tuesday Forbes pumped a high yielding energy name, which promptly cut their dividend in half later that day.  Oops.

Here is a name to consider:  Natural Resource Partners (NRP).  NRP operates a favorite business model of mine:  Royalties.  NRP does not get their hands dirty, they just take a cut off the top line.  The asset base is predominately coal, of which we’ve noted the bloodbath.  NRP’s business model, met coal production and Illinois assets have softened the blow.  And NRP is moving into other businesses.

As an MLP, the yield on NRP is 9.60%.  The market cap is $2.4 billion, year end 2011 long term debt was $836 million with cash on hand for growth of $215 million.  Revenue expectations for 2012 are from $335-380 million, a range expected to be tightened up mid-year.  The EBITDA margin in 2011 was 87.5%.

Moreover, with the security bumbling along at a 52 week low, risk management for a position would be easy to define.  Good luck!

Further research:  Latest annual report and 10/kLatest presentation; and a recent piece on Seeking Alpha.