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Targa Resources, Inc. (TRGP) is a Top Dividend Stock Right Now: Should You Buy?

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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

Based in Houston, Targa Resources, Inc. (TRGP) is in the Oils-Energy sector, and so far this year, shares have seen a price change of 35.85%. The company is paying out a dividend of $0.75 per share at the moment, with a dividend yield of 2.54% compared to the Oil and Gas - Refining and Marketing - Master Limited Partnerships industry's yield of 5.88% and the S&P 500's yield of 1.58%.

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In terms of 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%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Targa Resources's current payout ratio is 41%, meaning 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 $5.33 per share, representing a year-over-year earnings growth rate of 45.63%.

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. However, not all companies offer 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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