Top Dividend Growth Stocks — #3 Texas Pacific Land

We’re counting down the “Top 20 Dividend Growth Stocks” — coming in at #3, Texas Pacific Land (TPL) is both a real estate venture and energy company. Texas Pacific Land holds oil and gas royalty interests; easements and commercial leases comprising easement contracts for oil and gas pipelines and subsurface wellbore easements; It’s water group offers water sourcing, produced-water gathering/treatment, infrastructure development, disposal solutions, water tracking, analytics, and well testing services to operators in the Permian Basin. This segment also engages in the recycled water operations; and holds royalties for water sourced from its land. Founded in 1888, TPL is headquartered in Dallas, Texas.

Texas Pacific Land Corp (TPL) is ‘First Class,’ failing only 1 of 5 Dividend System criteria. It has ‘Premier’ status being in the upper percentiles of this month’s stock universe. The company increased dividends for 8 years, making it a Dividend Challenger 5+. We consider TPL to be a Growth stock.

GROWTH:  TPL’s 5-year average dividend growth rate is 46.3%, wonderfully high versus the dividend universe average of 12.4%. Free cash flow has grown at an average rate of 50.3% per year for the last 5 years versus the dividend universe at 8.3%, so TPL is performing very well.

INCOME: TPL’s current dividend yield is 1%, less than half of the average at 2.65%. 

SAFETY: We use the Dividend Coverage Ratio to measure the dividend’s safety – higher is better. TPL has a DCR of 2.8 which is good, exceeds the minimum requirement of 2. 

VALUATION: The price at time of analysis was $992.99, which we consider Overpriced. A fair price based on historical PE ratio and earnings would be around $815.52. The S&P500’s average PE ratio is 38.42, versus TPL’s PE ratio of 37.86,  below the S&P 500 average PE, indicating some value, as compared to our dividend universe. Our ‘Value Rating’ for Texas Pacific Land Corp is .5 out of 5.0, meaning that  both PS and PE indicate the stock is very expensive, compared to other dividend stocks available.

TIMING: Historical Yield and PE tell us that TPL has ‘Medium ‘Buy’ Signal’ Don’t eliminate a stock based on one factor (or lack thereof). 

QUALITY: Our quality formula gives TPL a ‘Quality Rating’ of 4.4 (out of 5), versus the average of 2.7 for this month’s dividend universe.

TOTAL RETURN: Over the last 15 years, the compound annual growth rate for an investment in Texas Pacific Land Corp was 20.88% per year with dividends reinvested, versus the S&P500 Total Return of around 11% per year for the same time period. As you can see, TPL is doing better than the market with dividends reinvested.

Compared to all dividend stocks paying 7 years or more of increasing dividends, we rate Texas Pacific Land Corp a ‘B+.’

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