Best Coal Stocks Right Now

The coal industry continues to be one of the world’s largest suppliers of energy. In the United States alone, about half a billion short tons of coal are converted to energy every year. Second only to natural gas, coal operations and coal stocks continue to be profitable for investors while powering the country.

Thinking about investing in the coal industry? Our guide to coal stocks will help you learn more about how burning coal works and what to look for in a coal stock. We’ll also introduce you to a few of our favorite brokers for investing in stocks under $5, as well as long-term holds and a few coal stocks that investors have their eyes on this year. 

Quick Look at the Best Coal Stocks:

• AMR
• ALRP
• ARCH
• BHP
• CEIX

Overview: Coal Stocks

Coal is a fossil fuel formed by layers of sediment. Millions of years ago, thick layers of plants were covered by dirt and water, as early Earth was mostly made up of swamplands. Plants and animals would die and settle to the bottom of this swamp. After layers and layers of biological material packed on top of one another, an immense amount of pressure changed the carbon in the plant and animal material into hard lumps of coal. 

Coal is used as an energy source because the compressed carbon in the pressured material burns for significantly longer than other materials like wood.

In the 1800s, people began using coal to heat their homes and power early locomotives and ships. Today, coal is primarily burned to generate electricity. When coal is burned in a furnace, the heat from the coal turns water in a furnace into steam. That steam is then used to turn a turbine and generate electricity, which is then distributed to homes via a transformer.  

The U.S. has more coal than any other country — about 25% of the total coal in the world. Coal must be extracted from the ground and pulverized before it can be used to generate electricity. Currently, 25 states have coal mining operations in place.

The term “coal stock” refers to any company involved in coal mining, processing or burning. A company with a coal stock might be responsible for mining coal from the earth, preparing the coal for burning, the burning of the coal, distribution of energy or all 4 processes.

Though coal is abundant, it contains traces of impurities like nitrogen and sulfur. When a coal plant or mining operation burns coal, the coal releases these substances into the air. From there, the impurities combine with water vapor in the atmosphere and fall back to the ground in the form of acid rain. 

Burning coal also releases carbon dioxide, an odorless, colorless gas that traps the Earth’s heat when it builds up in the atmosphere. Burning fossil fuels like coal is thought to contribute to global warming, the gradual increase in the world’s temperatures. “Clean coal” operations that remove certain impurities from coal can help lessen the environmental impact of burning coal for energy. 

Best Online Brokers for Coal Stock

No matter if you’re interested in adding a few coal stocks to your portfolio or you want to locate stocks under $10 to day trade, you need to open a brokerage account before you can place any buy or sell order. If you don’t already have a brokerage account, consider a few of our favorites below.  

Features to Look for in Coal Stock

There are a few features that can help you identify a profitable coal stock. Some features you may want to look out for include:   

• A positive earnings per share value: A company’s earnings per share (EPS) value indicates how much profit a company is producing per share of stock issued. A positive EPS value indicates that a company is profitable, while a negative EPS shows that the company is losing more money than it’s bringing in. According to research by Fidelity, the average EPS in the energy sector is generally strong, outpacing other industries. 
• A low price-to-earnings ratio: A company’s price-to-earnings (P/E) ratio is equal to the company’s current share price divided by the company’s EPS. The lower the P/E ratio, the better value that a stock is considered to be by investors.
• A reasonable dividend yield: Many investors are attracted to the energy sector because these stocks often produce higher-than-average dividends. A dividend is a portion of a company’s profit that is paid out to shareholders.

Though it can be tempting to look for companies with the highest dividend by dollar amount, you should be mindful of each stock’s dividend yield. The dividend yield is calculated by dividing the company’s annual dividend payout by its current share price. 

As a general rule, avoid investing in securities with a dividend yield above 10% — these are usually considered to be very risky investments because a high yield indicates that a dividend cut could be coming soon. 

Adding Energy to Your Portfolio With Coal

With higher-than-average dividends and lower P/E values, coal — and the energy sector as a whole — can be a great income-producing level of diversification to any portfolio. However, it’s important to remember that you should never put all of your financial resources in one area. If you do decide to purchase coal stocks, use them to complement a larger portfolio of total market index funds and S&P 500 funds.

No idea where to get started? Benzinga’s list of the best socially responsible mutual funds is an excellent crash-course in conscious investing, plus you can check out Benzinga’s guides to the best energy stocks, the best energy ETFs and the best renewable energy ETFs.