T. Rowe Price Group, Inc. (TROW) is a publicly owned asset management holding company. The firm provides its services to individuals, institutional investors, retirement plans, financial intermediaries, and institutions. T. Rowe Price Group is a dividend champion, which has raised dividends for 29 years in a row.
The most recent dividend increase was in February 2015, when the Board of Directors approved an 18.20% increase in the quarterly dividend to 52 cents/share.
The company’s largest competitors include Blackrock (BLK), Vanguard and Fidelity.
Over the past decade this dividend growth stock has delivered an annualized total return of 12.80% to its shareholders. Future returns will be dependent on growth in earnings and starting dividend yields obtained by shareholders.
The company has managed to deliver a 13.70% average increase in annual EPS over the past decade. T. Rowe Price Group is expected to earn $4.85 per share in 2015 and $5.38 per share in 2016. In comparison, the company earned $4.55/share in 2014.
Overall I am bullish on asset managers, who have the odds stacked in their favor for future success. Essentially, the goal of the game is to get as much in assets under management, and then try to have low costs relative to competitors. As a large portion of customers stay with a manager, this generates fees for years to come.
The annual dividend payment has increased by 16% per year over the past decade, which is much higher than the growth in EPS. Future growth in dividends will be much lower than that however, and will be limited by the growth in earnings per share.
A 16% growth in distributions translates into the dividend payment doubling every four and a half years on average. If we check the dividend history, going as far back as 1989, we could see that T. Rowe Price has managed to double dividends almost every four and a half years on average.
In the past decade, the dividend payout ratio has increased from 31% in 2005 to 38.70% by 2014. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
T. Rowe Price Group has also managed to generate a high return on equity, which stands at around 23% in 2014. You can see that this indicator is affected by stock market declines in the short-run. I generally like seeing a high return on equity, which is also relatively stable over time.
Currently, T. Rowe Price Group is attractively valued at 18.20 times forward earnings and yields 2.50%. I recently initiated a position in the company. I am hoping to slowly build my position in the stock.
Full Disclosure: Long TROW
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