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Why Targa Resources, Inc. (TRGP) is a Top Dividend Stock for Your Portfolio

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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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 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 - Free Report) is headquartered in Houston, and is in the Oils-Energy sector. The stock has seen a price change of 49.45% since the start of the year. The company is currently shelling out a dividend of $0.75 per share, with a dividend yield of 2.31%. This compares to the Oil and Gas - Refining and Marketing - Master Limited Partnerships industry's yield of 6.24% and the S&P 500's yield of 1.6%.

Looking at dividend growth, the company's current annualized dividend of $3 is up 62.2% from last year. Over the last 5 years, Targa Resources, Inc. has increased its dividend 2 times on a year-over-year basis for an average annual increase of 1.67%. 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 41%, which means it paid out 41% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for TRGP for this fiscal year. The Zacks Consensus Estimate for 2024 is $5.27 per share, with earnings expected to increase 43.99% from the year ago period.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. Income investors have to be mindful 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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