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Targa Resources Trades at a Higher Forward Yield than Peers

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Jun. 27 2016, Updated 8:04 a.m. ET

TRGP’s forward yield

As we learned in the previous article, Targa Resources (TRGP) trades at a forward dividend yield of ~9%. This is higher than the average 7.5% yield of its peers ONEOK (OKE), Spectra Energy (SE), Enterprise Products Partners (EPD), Williams Partners (WPZ), and Enbridge Energy Partners (EEP).

The forward dividend yield of a company is calculated by dividing its estimated one-year future dividend per unit by its market price per unit.

 

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TRGP’s expected dividend growth

The graph above compares the forward yields of TRGP and its peers relative to their expected dividend growths. As the graph shows, analysts expect TRGP’s two-year compounded dividend growth to be 2%. Among TRGP’s peers, SE is expected to provide the highest dividend growth, followed by EPD.

EEP, WPZ, and TRGP’s lower expected dividend growth likely contributes to their relatively higher yields.

EV/EBITDA multiple

Targa Resources is trading at a trailing-12-month EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 11.3x. In comparison, ONEOK (OKE), Spectra Energy (SE), Enterprise Products Partners (EPD), Williams Partners (WPZ), and Enbridge Energy Partners (EEP) are trading at EV/EBITDA multiples of 14.1x, 14.4x, 15.4x, 12.2x, and 13x, respectively. So, TRGP’s EV/EBITDA multiple is lower than average for selected peers.

As for forward multiples, TRGP trades at a forward EV/EBITDA of 11.5x. OKE, SE, EPD, WPZ, and EEP trade at forward EV/EBITDA ratios of 12x, 14x, 14.7x, 9.4x, and 11.3x, respectively. These lower forward ratios indicate expectations of EBITDA growth for all these companies in 2016.

Next, we’ll take a look at the recent changes in institutional investors’ holdings in Targa Resources.

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