Update on NRP, Variable Dividends, Buybacks and Soda Ash
NRP has reached the finish line of a remarkable turnaround, and is poised to become a capital return engine
NRP reported earnings last week and it sounds like the moment unitholders have been waiting for might finally be upon us: cash distributions are set to rise:
For those who don’t know NRP, it has been a remarkable turnaround over the past decade. In 2015, NRP set out to pay off its debt, simplify the business and the capital structure, and set the company up for success in the decades ahead.
The partnership has just about reached this goal:
Three years ago on the March 2023 earnings call, NRP President Craig Nunez said:
“The financial profile of today’s NRP is so remarkably improved from that of 7 years ago that it would be hardly recognizable to anyone who hand’t followed the transformation.”
With the debt and preferred stock paid off, NRP is now left with a portfolio of 13 million acres of unencumbered mineral rights, which give us a cost-free royalty on all the future value extracted from these properties.
I have written about NRP here and recently wrote about why I like royalty companies (like NRP as well as others) here. I also recommend Nat Stewart’s work on NRP, which gave me the rare and highly sought-after “hit me over the head obvious” moment, for how simple and logical the investment thesis was.
I commend the NRP management team for positioning the company for success in the decades to come. It’s also worth noting how much earning power has been hidden, since most of the cash has been used to pay down debt.
If we exclude the interest payments (since there will be none going forward), here is what NRP has earned in free cash flow per share: