Shares of Targa Resources Slid Hard in October -- Here's Why

What happened

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.

Image source: Getty Images

So what

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.

Now what

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.

A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Tyler Crowe has no position in any stocks mentioned.You can follow him at Fool.comor on Twitter@TylerCroweFool.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.