Netflix captured the spotlight in November when it executed its long-awaited 10-for-1 stock split. With just two weeks left in 2025, many investors probably figure they'll have to wait for 2026 for more high-profile splits.
Earlier this month, S&P 500 (^GSPC 1.23%) component Texas Pacific Land Corporation (TPL +2.33%) announced a 3-for-1 stock split. Trading of the split-adjusted shares will take place on Dec. 23.
Here's why Texas Pacific is no ordinary oil and gas company and why the high-margin cash cow could be an excellent gift for your portfolio this December.
Image source: Getty Images.
Another stock split for Texas Pacific
Texas Pacific's stock split will triple the number of shares outstanding while reducing the share price by two-thirds, making it easier for investors to buy one full share of the company at around $280 per share. This compares to around $840 per share at the time of this writing.
Stock splits can indicate that management is confident in a company's future earnings growth and thus, a higher future stock price. Even though stock splits don't impact a company's value or market capitalization, they're still generally received favorably by investors.
What makes Texas Pacific's split particularly interesting is that the stock is down 24.1% year to date -- but stock splits tend to occur after a stock has run up in price. To make matters even more interesting, the company issued a 3-for-1 stock split in March 2024.
It's incredibly rare for a company to issue stock splits in back-to-back years, but Texas Pacific more than doubled last year, has crushed the S&P 500 over the last five years, and is up 18-fold over the last decade. There are plenty of reasons to believe it has a long runway for future earnings growth.
NYSE: TPL
Key Data Points
Texas Pacific's unique role in the oil and gas value chain
The oil and gas industry is capital-intensive. Upstream exploration and production companies are the most sensitive to fluctuations in oil and gas prices. Midstream companies, which transport and store hydrocarbons, tend to have less price sensitivity due to long-term contracts but are incredibly capital-intensive and depend on growing demand to justify infrastructure spending. Similarly, the margins of downstream refining and marketing companies can fluctuate based on input costs, such as oil prices and the cyclical demand for refined products.
Texas Pacific is unique because it doesn't produce oil and gas, transport it via pipelines and store it, or refine it. Rather, the company was formed in 1888 when 3.8 million acres of Texas land were put into a trust for the benefit of bondholders who invested in a bankrupt railroad. The land didn't have a ton of value at the time, but one section of it would turn out to be a gold mine.
The Texas Pacific of today owns 882,000 surface acres of land and 207,000 net royalty acres, the majority of which is located in the Permian Basin of West Texas and Southeastern New Mexico. The Permian is the largest onshore oil-and-gas-producing region in North America, accounting for roughly 40% of U.S. oil production.
The Permian has been growing faster than other U.S. production regions due to its low cost of production and proximity to oil and gas infrastructure, including transportation, storage, and export terminals along the U.S. Gulf Coast.
The West Texas money tree
Texas Pacific rakes in ultra-high margins, regardless of oil and gas prices, thanks to its minimal operating expenses. It generates its primary revenue from oil and gas royalties, while also expanding its water business, as water sourcing, disposal, gathering, treatment, and recycling are essential services in oil and gas fracking operations. The company also makes money from easements, like when a utility or pipeline pays it to build infrastructure on its land, with Texas Pacific still retaining ownership of the land.
|
Metric ($Millions) |
Nine Months Ended Sept. 30, 2025 |
Nine Months Ended Sept. 30, 2024 |
|---|---|---|
|
Revenue on oil royalties |
$229.93 |
$222.79 |
|
Revenue on natural gas royalties |
$33.58 |
$13.63 |
|
Revenue on natural gas liquids royalties |
$51.45 |
$39.96 |
|
Revenue on water sales |
$108.97 |
$113.99 |
|
Revenue on produced water royalties |
$90.71 |
$76.03 |
|
Revenue on easements and other surface-related income |
$71.16 |
$51.5 |
|
Revenue on land sales |
$0.82 |
$2.15 |
|
Total revenue |
$586.61 |
$520.04 |
|
Total operating expenses |
$143.7 |
$123.45 |
|
Operating income |
$442.92 |
$396.59 |
|
Operating margin |
75.5% |
76.3% |
|
Net income |
$358.03 |
$335.6 |
|
Net profit margin |
61% |
64.5% |
Data source: Texas Pacific. Chart by author.
The company realized an average oil price of $66.59 for the nine months ended Sept. 30, 2025, compared to $77.68 for the nine months ended Sept. 30, 2024. Despite lower oil prices, it still generated slightly higher oil royalties, which plays to the strengths of its business model.
Texas Pacific benefits from rising oil and gas production and prices, which has been the case with natural gas in 2025. However, it can still grow, as long as production is increasing, even if prices level off -- which has been the case with oil in 2025.
As you can see in the table, the company is converting over $0.60 of every dollar in revenue into net profit, which is after taxes. Because Texas Pacific is a high-margin cash cow, it typically uses its cash flow to buy more royalty-producing acreage or return cash directly to shareholders through dividends. In the third quarter of 2025, it announced the purchase of 17,306 net royalty acres and 8,147 surface acres for $505 million in cash. In 2024, the company's cash pile got big enough that it announced a $10 per share special dividend.
Texas Pacific is an excellent buy in December
In an industry where leverage can lead to outsized gains or steep losses during a downturn, Texas Pacific is an excellent choice for risk-averse investors. The valuation isn't cheap at 40.5 times earnings, but that's reasonable considering the company has an impeccable balance sheet and sky-high margins. In its latest quarter, ended Sept. 30, it had no long-term debt and $532 million in cash and cash equivalents.
Texas Pacific should continue to grow earnings and cash flow as Permian Basin production increases, which it can use to buy more acreage or return capital to shareholders. Outside of special dividends, the company pays a quarterly dividend, good for a yield of 0.8%.
All told, the company offers investors one of the safest ways to benefit from growth in U.S. oil and gas production, without the downside risks associated with investing in a capital-intensive part of the industry.
