The Texas Pacific Land Company was a highly profitable cash cow.
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 growing oil and gas production.
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Netflix The company came into the spotlight last November when it executed a long-awaited 10-for-1 stock split. With just two weeks left until 2025, many investors may think they’ll have to wait until 2026 to see a more compelling spinoff.
At the beginning of this month, S&P 500 Index(SNPINDEX:^GSPC) Element Texas Pacific Land Company(NYSE: TPL) Announced a 1-for-3 stock split. The split-adjusted shares will trade on December 23.
Here’s why Texas Pacific is no ordinary oil and gas company, and why a highly profitable cash cow could make a great gift for your investment portfolio this December.
Image source: Getty Images.
Texas Pacific’s stock split will triple the number of outstanding shares while lowering the stock price by two-thirds, making it easier for investors to purchase all of the company’s shares at about $280 per share. That compares to about $840 per share at the time of writing.
A stock split can signal management’s confidence in a company’s future earnings growth and a higher stock price in the future. Although stock splits do not affect a company’s value or market capitalization, they are still generally favored by investors.
What’s particularly interesting about Texas Pacific’s split is that the stock is down 24.1% year to date, but stock splits tend to follow increases in stock prices. Even more interestingly, the company did a 3-for-1 stock split in March 2024.
It’s extremely rare for a company to do stock splits in consecutive years, but Texas Pacific’s stock price more than doubled last year, has crushed the S&P 500 over the past five years, and is up 18-fold over the past decade. There’s plenty of reason to believe that its future earnings growth still has a long way to go.
The oil and gas industry is capital intensive. Upstream exploration and production companies are most sensitive to oil and gas price fluctuations. Midstream companies that transport and store hydrocarbons tend to be less price-sensitive due to long-term contracts, but are extremely capital-intensive and rely on growing demand to justify infrastructure spending. Likewise, profits of downstream refining and marketing companies may 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 natural gas, nor does it transport, store or refine it through pipelines. Instead, the company was founded in 1888 when it placed 3.8 million acres of Texas land into a trust to protect the interests of bondholders who had invested in bankrupt railroads. The land didn’t have much value at the time, but part of it later turned into a gold mine.
Today, Texas Pacific owns 882,000 acres of land and 207,000 acres of net royalties, mostly in the Permian Basin of west Texas and southeastern New Mexico. The Permian Basin is the largest onshore oil and gas producing area in North America, accounting for approximately 40% of U.S. oil production.
The Permian Basin is growing faster than other U.S. producing regions due to its low production costs and proximity to oil and gas infrastructure, including transportation, storage and export terminals on the U.S. Gulf Coast.
Regardless of oil and gas prices, Texas Pacific enjoys ultra-high profits thanks to its lowest operating expenses. The company generates its primary revenue from oil and gas royalties and has also expanded its water business, as the procurement, disposal, collection, treatment and recovery of water are essential services for oil and gas hydraulic fracturing operations. The company also makes money from easements, such as when a utility or pipeline company pays it to build infrastructure on its land, while Texas Pacific retains ownership of the land.
Data source: Texas Pacific Corporation. Diagram drawn by the author.
The company’s average oil price for the nine months ended September 30, 2025 was $66.59, compared with an average oil price of $77.68 for the nine months ended September 30, 2024. It still generated slightly higher oil royalties despite lower oil prices, which played to the strengths of its business model.
Texas Pacific is benefiting from rising oil and natural gas production and prices, and that’s the case for natural gas in 2025. However, as long as production increases, even if prices level off, which is the case for oil in 2025, it can still grow.
As you can see in the table, the company converted just over $0.60 of every $1 of revenue into net profit (after taxes). Because Texas Pacific is a highly profitable cash cow, it typically uses its cash flow to purchase more royalty land or return cash directly to shareholders through dividends. In the third quarter of 2025, it announced the purchase of 17,306 net concession acres and 8,147 land acres for $505 million in cash. In 2024, the company has enough cash reserves that it declared a special dividend of $10 per share.
In an industry where leverage can lead to big gains or big losses during a downturn, Texas Pacific is an excellent choice for risk-averse investors. A valuation of 40.5 times earnings isn’t cheap, but it’s reasonable given the company’s impeccable balance sheet and sky-high profit margins. The company had no long-term debt and $532 million in cash and cash equivalents in its latest quarter, which ended Sept. 30.
Texas Pacific’s earnings and cash flow should continue to grow as production increases in the Permian Basin, which it can use to buy more land or return capital to shareholders. In addition to the special dividend, the company also pays a quarterly dividend, yielding 0.8%.
All in all, the company offers investors one of the safest ways to benefit from growth in U.S. oil and gas production without the downside risk associated with investing in the capital-intensive part of the industry.
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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has a position and recommendation on Netflix. The Motley Fool has a disclosure policy.
Why is no one talking about this monster 3-for-1 stock split that will take effect before the end of 2025? Originally posted by The Motley Fool
