March 25, 2019 - It’s not a great time to be a coal miner, but there’s never been a better time for their shareholders.

U.S. coal companies returned almost $3.7-billion in dividends and buybacks to shareholders in the 12 months through September, and S&P Global Ratings expects more of the same this year. That’s boosting yields to unheard-of levels, in some cases to about nine times that of ten-year treasuries.

The returns reflect the state of an industry that’s slowly dying. Strong export prices are providing healthy cash flows for now. But with U.S. utilities largely shifting to cheap natural gas and clean renewables, there’s not much reason to dig new mines or scoop up acquisitions. For large miners, including Peabody Energy, returning money to investors is the default setting.

“There is no question in my mind that this is the most focused U.S. coal companies have ever been on shareholder returns, and the least focused on growth,” said Jeremy Sussman, an analyst with Clarksons Platou Securities.

To be sure, there’s been some growth, mainly for the metallurgical coal used to make steel. Peabody, the top U.S. coal company, bought an Alabama mine in December, and Arch Coal Inc., which is No. 2, announced plans in February to open a mine in West Virginia. But the Arch site will plumb the same reserves as an existing mine in a low-cost low-risk move.

Meanwhile, Peabody expects “less investing this year,” according to Julie Gates, director of investor relations.

In February, St. Louis-based Peabody announced its biggest dividend ever, a special distribution of $1.85 a share, giving shareholders a 12-month yield of about 7.7%. It’s also spent $1.1-billion over 18 months purchasing its own shares.

The company allocated about two-thirds of its free cash flow last year toward dividends and share buybacks. This year the plan is to return all of it to shareholders.

Peabody’s not alone. Arch is also in giveback mode. So is Warrior Met Coal, Alliance Resource Partners, and Foresight Energy. Here’s a breakdown:

Arch has spent $640-million through the end of last year buying up its shares. It introduced a dividend in 2017 after exiting bankruptcy the prior year, and has increased the payment by 29%. Warrior delivered a whopping 23% 12-month dividend yield after issuing two special distributions, one in April 2018 for $6.53 a share and another in November 2017 for $11.21. At Alliance, the 12-month yield is more than 10%. For Foresight, it’s more than 8%.

Much of this is funded by healthy international demand. U.S. power plants are rapidly shifting away from coal, but other countries are moving more slowly, especially in Asia. Thermal coal at Australia’s Newcastle port, a global benchmark, has almost doubled from 2016 to about $90 a metric ton.

Lucas Pipes, an analyst with B. Riley FBR, expects global consumption to increase slowly for about a decade, then gradually taper off. “There’s no new supply growth, so why should prices go down?” Pipes said.

That’s even more true for companies that sell metallurgical coal used to make steel. Driven by steady industrial demand, especially in China, prices have more than doubled since 2016 to $210 a metric ton. For miners, it means revenue coming in and few ways to spend it besides returning it to shareholders.

“There’s an absence of growth,” Vania Dimova, an associate director with S&P Global Ratings, said in an interview. “Investors don’t want them to sit on the cash.”