We recently compiled a list of the 10 Unstoppable Dividend Stocks to Buy. In this article, we will have a look at where Targa Resources Corp. (NYSE:TRGP) ranks among other unstoppable dividend stocks to buy.
It’s undeniable that dividends have played a key role in the market’s returns over the past year. While they hit a rough patch for a bit, these stocks still have plenty of room to grow. Their rising significance is tied to the fact that US companies are boosting their dividend payouts, thanks to strong cash flow. Many US firms, particularly in the tech sector, have substantial cash reserves on their balance sheets. Due to this, several major tech companies have introduced dividend policies this year, sparking renewed interest in dividend stocks.
In addition, with the market shifting away from top-performing stocks and the Federal Reserve likely to reduce interest rates, dividend stocks remain a valuable option for investors seeking solid returns. Dan Lefkovitz, a strategist for Morningstar Indexes, also supported investing in dividend stocks this year. Here are some comments from the analyst:
“Investing in dividend-paying stocks is a good way to participate in equities over the long term. There have been long stretches when the dividend-paying section of the market has outperformed. Eventually, they’ll come back into favor.”
When it comes to dividend stock investing, the attention is often split between high yields and dividend growth. Analysts tend to favor dividend growth, as it offers a more reliable income stream. In contrast, high yields can sometimes be misleading, hinting at potential financial difficulties. A report from RBC Wealth Management highlights that high-yield stocks have been lagging behind those with lower yields this year. By July 2024, stocks yielding less than 1% delivered an average return of 18%, significantly outperforming the 0.9% average return of stocks yielding over 3%. The report also mentioned that the Dividend Aristocrats, companies that have raised their payouts for at least 25 consecutive years, have historically performed well both during and after economic downturns. Their success is built on appealing valuations relative to the broader market and business models that have proven durable in the face of economic uncertainty. Currently, these equities are trading at a trailing twelve-month P/E of 24.95, which indicates confidence in the stability and growth of these companies.
Several reports have highlighted that while dividend growth companies might not deliver instant gratification, they provide significant long-term advantages. Nuveen, an Illinois-based financial planning firm, also expressed a positive view on dividend growth strategies this year, noting their strong historical track record. The report emphasized that companies focused on growing their dividends possess qualities that pave the way for solid performance in the future. Over the long haul, companies that consistently boost or introduce dividends have outpaced other market segments, achieving higher annualized returns with less volatility. While they may not always shine in every market condition, their steady, risk-adjusted returns over time make them a cornerstone for any equity portfolio—truly a case of “slow and steady wins the race.” With that, we will take a look at unstoppable stocks that pay dividends.
Our Methodology:
For this article, we first used a stock screener to identify stocks that have reported positive returns in 2024 so far. From this selection, we chose dividend stocks with year-to-date (YTD) gains of at least 30%, as of the close of September 9. The stocks were then arranged in ascending order of their YTD gains.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Targa Resources Corp. (NYSE:TRGP)
Year-to-Date Return as of September 9: 67.8%
Targa Resources Corp. (NYSE:TRGP) is a Texas-based midstream energy infrastructure company that mainly delivers natural gas and natural gas liquids in the US. The company saw gains from increased NGL supplies, both from its gathering and processing systems and from third-party sources. Additionally, the recent expansion of its LPG system and better market conditions contributed to its performance. The stock has delivered a 67.8% return to shareholders year-to-date.
Targa Resources Corp. (NYSE:TRGP) expects a substantial increase in free cash flow for 2025, driven by the completion of upcoming expansion projects. As a result, the pipeline stock may have the momentum to sustain its upward trend. In the second quarter of 2024, the company posted an operating cash flow of $808.5 million, up from $622 million in the prior year period.
Targa Resources Corp. (NYSE:TRGP) has consistently maintained its dividend performance. The company has raised its dividend significantly in the past years. In the most recent quarter, it returned $164 million to investors through dividends. The company pays a quarterly dividend of $0.75 per share and has a dividend yield of 2.09%, as of September 9. Its dividend is likely to keep increasing rapidly in the years ahead. The company’s free cash flow is expected to receive a significant boost in 2025, as multiple expansion projects currently underway start operating and capital expenditures decrease.
At the end of June 2024, 39 hedge funds tracked by Insider Monkey owned stakes in Targa Resources Corp. (NYSE:TRGP), up from 38 in the previous quarter. These stakes have a total value of $702 million.
Overall, TRGP ranks 2nd on our list. While we acknowledge the potential for TRGP to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.