(By Mani) Targa Resources Corp.
) should reward investors with a dynamic portfolio of Southern US and Gulf Coast-based midstream assets, a solid balance sheet, rapidly growing distributions and $1.0 billion of identified growth projects through 2013.
Targa Resources owns general and limited partner interests, including incentive distribution rights (IDRs), in Targa Resources Partners (NYSE:NGLS), a leading provider of midstream natural gas and natural gas liquid services in the United States. The company's IDRs entitle it to receive increasing percentages, up to 48 percent, of all cash distributed by the partnership.
"In providing midstream services that are essential for other elements of the energy value chain to be realized, TRGP plays a critical role in the ongoing development of US oil and natural gas resources," UBS analyst Christopher Sighinolfi wrote in a note to clients.
Furthermore, with E&Ps increasingly focused on crude oil and natural gas liquids (NGL) development, the company's liquids-rich footprint is well positioned to capture future growth opportunities.
The company boasts a deep and dynamic inventory of organic expansion opportunities which underpin its growth for years to come. The company has identified organic growth projects totaling about $1.0 billion through 2013. These investments are primarily directed toward NGL infrastructure development, and Targa expects to deploy capital at EBITDA multiples of 5.0-7.0 times.
In addition, Targa Resources has a long history of successfully executing midstream and downstream expansion projects through a disciplined approach to evaluating, marketing, permitting, and constructing brownfield and greenfield build-outs.
"NGLS's tax-deferred structure, lower cost of capital, and retail-oriented investor base presents TRGP shareholders with enhanced opportunities for profitable growth projects and/or acquisitions of complementary assets," the analyst said.
Meanwhile, the company has outlined a robust pace of dividend increases, including 30-40 percent targeted dividend growth in 2012. With total paid dividends of $1.21 a share in 2011, these raises imply a full-year 2012 dividend in the range of $1.58 - $1.69.
"Given our forecast 2012 dividend coverage ratio of 1.1x and a long-dated inventory of 5.0-7.0x EBITDA organic growth projects, we believe TRGP can achieve a dividend CAGR of ~23.5% through 2016," Sighinolfi noted.
This level of dividend growth far outpaces the company's peers and certainly dwarfs the growth rates of traditional, regulated energy companies (gas and electric utilities).
"As economic uncertainty abounds and investors increasingly look for stable income-paying investments, we believe TRGP's current 3.6% yield and 5-year dividend growth prospects will continue to attract investor flows," the analyst added.