Tuesday, January 26, 2010

Peabody Energy Reverse Dividend Signal

Peabody Energy (BTU) posted great looking numbers and shareholders energized the stock and drove the price upwards. China and India are buying in huge quantities causing inventories to deplete and prices to rise. China has become a net importer of met coal and India has huge electric generation plants under construction. Peabody lays claim to 2% of the world coal and some 10% in the US.

Yet the market cap is around $12 billion and the dividend is very anaemic looking. The stock has become a commodities play and management speaks to the commodities aspects first and investors second. Given their stated propensity for long term contracts with locked in profits there should be more respect for the power of a dividend.

The reverse dividend signal that is being sent lets investors conclude this is a play stock and not a core holding. Substantial dividend increases would go a long way to reverse investor conclusions.