Arch Resources (NYSE: ARCH) produces coal used for steelmaking and power generation. Along with third-quarter earnings, it announced a dividend of $1.13 per share, down from $3.97 in Q2. That's a huge dividend cut, but there's more to unpack here before you make any decisions.

As with some oil producers, Arch has adopted a variable-dividend policy. The dividend is, effectively, tied to the coal producer's financial performance. That, in turn, is heavily influenced by the prices of thermal and metallurgical coal. The coal used in power plants (thermal coal) and the coal used in steelmaking (metallurgical coal) can see big spikes and valleys. So Arch's performance can move around quite a bit. Using a variable-dividend policy is a fairly direct way to ensure that investors benefit from the good times, though it also means accepting dividend cuts during lean times. 

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Source Fool.com