Shares of Targa Resources (NYSE:TRGP) declined 10.5% in October. While some of it has to do with the overall sector malaise -- the Alerian MLP Index was also down 4.3% in the month -- a large chunk of it is related to the company's announcement that it was keeping its dividend payment flat at $0.91 per share.
Late last year, Targa announced that it would buy out its subsidiary master limited partnership. The goal of the acquisition was to lower the cost of capital to pursue more new projects. That, in turn, was supposed to help spur faster dividend growth. Since that buyout happened, though, neither of these things has actually materialized. The company's project pipeline is drying up very quickly, and the company is extremely interested in debt reduction as of late.
So Targa's announcement on Oct. 19 that it was keeping its dividend at a flat rate was enough to get investors who have hung on to give up on the company.
The slightly better news was that, when Targa reported its earnings on Nov. 2, it announced that it would meet its cash flow targets for the year, which will provide more than enough cash to cover dividends. Hopefully, this can translate to debt reduction that will put the company in a better financial position.
The big uncertainty for the longer term, though, has to do with when the company will be able to replenish its backlog of new projects. If, as Targa has already said, it has to keep its payout flat with only a few projects left in the backlog, that doesn't portend well for a company that presents itself as a strong income generator.