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I added Targa Resources Partners (NGLS) to my Dividend Income portfolio on January 11 because the units offer a really attractive potential for dividend growth and capital gains. The current dividend, at 6.81% on January 11, isn’t any too shabby either. (For the most recent update on that portfolio see my post

The big upside here comes from Targa’s acquisition of oil and natural gas pipelines from Saddle Butte Pipeline that for the first time moved Targa into the Bakken shale formation of North Dakota that is the heart of the U.S. oil boom. The deal also gave Targa its first oil pipelines—before that Targa had been a natural gas only pipeline play. The North Dakota oil boom is currently very underserved by pipelines, which gives pipeline companies with footholds in the area, and that now includes Targa, an opportunity to invest today’s cheap money in profitable new capital projects.

After the deal Targa reiterated its projections for 10% growth in distributions to holders of the MLP (master limited partnership) units in 2013 from 2012 levels. And the assets added in the deal look to me like they take some of the risk out of Targa’s cash flow. The company has been moving to increase the share of its revenue that comes from fee-based transportation of natural gas liquids from 37% in the last twelve months to a projected 55% by the end of 2014. Fee-based rather than price-based revenue gives Targa protection from what looks like a developing oversupply of natural gas liquids.

I think Targa can easily grow distributions by 9% or so a year over the next few years. That distribution and dividend growth gives Targa—and investors in Targa—protection from a return of inflation or from rising interest rates.

I calculate a one-year target price of $44 for Targa.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Targa as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at