Commodities To Hate, But Own Anyway: Exxon Mobil Corporation (XOM), Royal Dutch Shell plc (ADR) (RDS.A)

Note, too, that while coal use is falling in The United States, countries like China and India keep right on using it. It is also a key input for making steel. So, while the price of natural gas is important to coal demand, there are other factors that could change the negative view of coal investments. Two solid options in the space are Alliance Resource Partners, L.P. (NASDAQ:ARLP) and Natural Resource Partners LP (NYSE:NRP). Both companies are limited partnerships and pay relatively large distributions.

Alliance is the largest coal focused LP and owns and operates its mines. It is well respected in the industry and on Wall Street, particularly since it has been able to increase its dividend regularly regardless of the coal market or the economy. With a recent yield of over 7%, this would be a good option for less aggressive investors.

Natural Resource Partners owns mines, but does not operate them. This means the company doesn’t have to deal with the regulatory and safety risks of running a mine. While that materially simplifies the business, the company is reliant on its lessees’ performance. Conservatively written contracts help to mitigate that risk to some degree, but it will always be an issue. A move to own and lease out properties with different resources, such as natural gas, is also a nice diversification effort. Still, the company’s yield is close to 10%, which makes it appropriate for only the most aggressive accounts.

Unloved but Important

While natural gas and coal are both unloved in the commodity markets today, they are vital energy sources. Just how important the two are was highlighted by Exxon Mobil Corporation (NYSE:XOM) in its 2011 annual review: “Demand for natural gas is expected to rise by more than 60 percent by 2040, overtaking coal as the second most widely used fuel.”

While it is hard to predict when the prices of these “tied at the hip” commodities will rise, when they do, the above companies are likely to benefit. And having exposure to the number two and three energy sources isn’t such a bad idea, either.

The article Commodities To Hate, But Own Anyway originally appeared on Fool.com and is written by Reuben Gregg Brewer.

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