Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 Quick QuoteTRGP - Free Report) is headquartered in Houston, and is in the Oils-Energy sector. The stock has seen a price change of -4.26% since the start of the year. The company is currently shelling out a dividend of $0.75 per share, with a dividend yield of 2.34%. This compares to the Oil and Gas - Refining and Marketing - Master Limited Partnerships industry's yield of 5.86% and the S&P 500's yield of 1.63%.

Looking at dividend growth, the company's current annualized dividend of $4 is up 45.5% from last year. Over the last 5 years, Targa Resources, Inc. has increased its dividend 3 times on a year-over-year basis for an average annual increase of 68.86%. 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 52%. This means it paid out 52% of its trailing 12-month EPS as dividend.

TRGP is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $8.45 per share, representing a year-over-year earnings growth rate of 47.21%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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).