Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Targa Resources, Inc. In Focus
Targa Resources, Inc. (TRGP) is headquartered in Houston, and is in the Oils-Energy sector. The stock has seen a price change of -7.18% since the start of the year. The company is paying out a dividend of $1 per share at the moment, with a dividend yield of 2.41% compared to the Oil and Gas - Refining and Marketing - Master Limited Partnerships industry's yield of 6.34% and the S&P 500's yield of 1.52%.
Taking a look at the company's dividend growth, its current annualized dividend of $4 is up 45.5% from last year. Targa Resources, Inc. has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 68.86%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Targa Resources's current payout ratio is 55%, meaning it paid out 55% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for TRGP for this fiscal year. The Zacks Consensus Estimate for 2025 is $7.99 per share, which represents a year-over-year growth rate of 39.20%.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TRGP is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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Targa Resources, Inc. (TRGP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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