Targa Resources surges on record EBITDA, 25% dividend hike
Midstream operator raised 2026 guidance despite revenue miss, plans $4.5B in expansion projects
Targa Resources shares rose sharply in Thursday trading after the midstream energy operator reported record earnings and announced a significant dividend increase, signaling confidence in its expanding Permian Basin infrastructure despite missing revenue expectations.
The Houston-based company reported fourth-quarter adjusted EBITDA of $1.341 billion, a 20% increase from the same period last year, while full-year 2025 adjusted EBITDA reached a record $4.96 billion, also up 20% year-over-year. Net income for the quarter surged 55% to $545 million.
Revenue of $4.06 billion fell 12.9% short of analyst expectations of $4.66 billion, but the stronger-than-expected profitability metrics overshadowed the top-line shortfall. The stock was trading 1.5% higher at $227.62 in afternoon trading, having reached a new 52-week high of $229.88 earlier in the session.
The company raised its 2026 adjusted EBITDA guidance to $5.4 billion to $5.6 billion, representing 11% growth at the midpoint compared to 2025. Additionally, Targa announced plans to recommend a 25% increase in its annual dividend to $5.00 per share, or $1.25 quarterly, effective for the first quarter of 2026.
"We are very pleased with our strong operational and financial performance in 2025, which generated record adjusted EBITDA and significant free cash flow," said Matt Meloy, Targa's chief executive officer, in the earnings statement. "The positive momentum across our business continues, driven by the strength of our Permian position."
Targa outlined ambitious expansion plans for 2026, including estimated net growth capital expenditures of approximately $4.5 billion. The investments will fund six new natural gas liquid processing plants in the Permian Basin, three new fractionators at its Mont Belvieu complex, and the Speedway NGL Pipeline. The company also announced a new 150,000 barrel-per-day fractionator, Train 13, scheduled to begin operations in the first quarter of 2028.
Analysts have grown increasingly bullish on the stock ahead of earnings. Morgan Stanley raised its price target to $266 from $264 on January 28, maintaining an "overweight" rating, while Scotiabank reiterated an "outperform" rating with a $224 price target on January 16.
The dividend increase marks the latest step in Targa's shareholder return strategy, which has seen the company progressively boost payouts as its fee-based revenue stream has expanded. More than 90% of the company's revenue is now fee-based, providing stability amid commodity price volatility.
Looking ahead, the company expects to complete major downstream capital projects in the second half of 2027, which Meloy said will "provide significant operating leverage and drive Targa's next transformation towards growing and durable free cash flow."
The upcoming Yeti II processing plant in the Permian Delaware Basin, expected to commence operations in the fourth quarter of 2027, represents another key growth catalyst. Combined with the expanded Mont Belvieu fractionation capacity, these projects should position Targa to capitalize on continued production growth in America's most prolific oil and gas field.