Its land is valuable because it is located in the largest oil and gas producing region in the United States.
The company is one of the safest ways to invest in the growth of oil and gas production.
10 Stocks We Like More Than Texas Pacific Land ›
Netflix grabbed the spotlight in November when it executed its long-awaited 10-for-1 stock split. With just two weeks left in 2025, many investors will likely have to wait until 2026 for more significant splits.
Earlier this month, S&P 500(SNPINDEX: ^GSPC) compound Texas Pacific Land Corporation(NYSE: TPL) announced a 3-for-1 stock split. Split-adjusted stock trading will take place on December 23.
Here’s why Texas Pacific is no ordinary oil and gas company, and why the high-margin cash cow could be a great gift for your portfolio this December.
Image source: Getty Images.
The Texas Pacific stock split will triple the number of shares outstanding while slashing the stock price by two-thirds, making it easier for investors to buy a full share of the company at about $280 per share. That compares to about $840 per share at the time of writing.
Stock splits can indicate that management is confident in a company’s future earnings growth and therefore a higher future share price. Even though stock splits do not affect a company’s value or market capitalization, they are 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’s price has risen. To make things 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 consecutive years, but Texas Pacific doubled last year, crushed the S&P 500 over the past five years and is up 18 times over the past decade. There’s plenty of reason to believe it has a long runway for future earnings growth.
The oil and gas industry is capital intensive. Upstream exploration and production companies are 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 dependent on growing demand to justify infrastructure spending. Similarly, downstream refining and marketing companies’ margins can fluctuate based on input costs such as oil prices and cyclical demand for refined products.
Texas Pacific is unique in that it does not produce oil and gas, transport them through pipelines, and does not store or refine them. Rather, the company was founded in 1888 when 3.8 million acres of land in Texas were placed in a trust for the benefit of bondholders who had invested in a bankrupt railroad. The land wasn’t worth a ton at the time, but a section of it would turn out to be a gold mine.
Texas Pacific today owns 882,000 acres of land and 207,000 acres of net rights, most of which are 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 approximately 40% of US oil production.
The Permian has grown 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.
Texas Pacific makes very high margins regardless of oil and gas prices due to its minimal operating expenses. It generates its main revenue from oil and gas royalties, while also expanding its water business, as water supply, disposal, collection, treatment and recycling are essential services in oil and gas fracking operations. The company also makes money from easements, such as when a utility or pipeline pays it to build infrastructure on its land, with Texas Pacific still retaining ownership of the land.
Value ($Millions)
Nine months ended September 30, 2025
Nine months ended September 30, 2024
Revenue from oil royalties
$229.93
$222.79
Revenues from natural gas royalties
$33.58
$13.63
Revenue from natural gas liquids royalties
$51.45
$39.96
Revenue from water sales
$108.97
$113.99
Revenues from produced water royalties
$90.71
$76.03
Income from servitudes and other surface income
$71.16
$51.5
Income from land sales
$0.82
$2.15
Total income
$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 achieved an average oil price of $66.59 for the nine months ended September 30, 2025, compared to $77.68 for the nine months ended September 30, 2024. Despite lower oil prices, it still generated slightly higher royalties, which contributes to the strengths of its business model.
Texas Pacific benefits from rising oil and gas production and prices, which was the case for natural gas in 2025. However, it can continue to grow as long as production increases, even if prices stabilize — which was the case for oil in 2025.
As you can see in the table, the company converts over $0.60 of every dollar of 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 rights acres and 8,147 surface acres for $505 million in cash. In 2024, the company’s cash pile grew large enough that it announced a special dividend of $10 per share.
In an industry where leverage can lead to huge 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 given the company’s spotless balance sheet and soaring margins. In its most recent 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 0.8% yield.
Overall, the company offers investors one of the safest ways to benefit from rising U.S. oil and gas production without the downside risks associated with investing in a capital-intensive part of the industry.
Before buying shares in Texas Pacific Land, consider the following:
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Daniel Foelber has no position in any of the listed stocks. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
Why isn’t anyone talking about this monster 3-for-1 stock split going into effect before the end of 2025? was originally published by The Motley Fool
