Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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
Headquartered in Houston, Targa Resources, Inc. (TRGP) is an Oils-Energy stock that has seen a price change of -5.14% so far this year. The company is paying out a dividend of $1 per share at the moment, with a dividend yield of 2.36% compared to the Oil and Gas - Refining and Marketing - Master Limited Partnerships industry's yield of 6.06% and the S&P 500's yield of 1.59%.
In terms of dividend growth, the company's current annualized dividend of $4 is up 45.5% from last year. In the past five-year period, Targa Resources, Inc. has increased its dividend 3 times on a year-over-year basis 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, with earnings expected to increase 35.54% from the year ago period.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
