All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
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 -7.6% since the start of the year. Currently paying a dividend of $1 per share, the company has a dividend yield of 2.43%. In comparison, the Oil and Gas - Refining and Marketing - Master Limited Partnerships industry's yield is 6.17%, while the S&P 500's yield is 1.54%.
Looking at dividend growth, the company's 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. Right now, Targa Resources's payout ratio is 55%, which means it paid out 55% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TRGP expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $7.78 per share, representing a year-over-year earnings growth rate of 35.54%.
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. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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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