Targa Resources Corp (TRGP) offers 25% to 30% annual growth in its dividend along with growth potential, while its limited partner Targa Resources Partners LP (NGLS) offers a double-digit total return expected in the next 12 months, says Gregory A. Reid, Managing Director at Salient Partners, L.P.
“[With TRGP] you get a growth rate that’s around 2.5 times to three times as high, so we are looking for 25% to 30% annual growth in the dividend in that case, so that is a better total return opportunity to invest in the general partner. And so what we do in that case is we own both the GP and the LP and achieve some diversification, and those have been fantastic investments for us for the last three to five years,” Reid said.
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Reid owns both stocks in his portfolio, and he says this Houston gathering-and-processing master limited partnership is one of his top MLP holdings. He says MLPs are benefiting from low interest rates and investor desire for yield.
“We own both of them, for different reasons. The limited partner MLP is trading at about a 6% current yield, and we are expecting to see 10% growth this year in their distribution, so that looks like a 15% or 16% total return opportunity when we look at that next 12 months’ return. The general partner is a C-Corp general partner; it yields 2.8% today,” Reid said.
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