Monday, March 23, 2015

Recent Buy: T. Rowe Price Group Inc

Mar 16, 2015: Bought 30 shares of TROW at $83.40 per share.

Founded in 1937 and based in Baltimore, Maryland, T. Rowe Price Group Inc (NASDAQ:TROW) is a financial services holding company that provides global investment management services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios, as well as through variable annuity life insurance plans.

TROW is a Dividend Champion with an impressive 29-year streak of consecutive dividend increases. It pays quarterly dividends of 44¢ per share in the months of January, April, July and October.

Several dividend growth investors reported buying shares of TROW in the past few weeks:

Passive Income Pursuit wrote a nice analysis (Why T. Rowe Price Group, Inc. Is At The Top Of My Watch List) and suggested that he would buy shares soon.

I guess I find myself in great company!

My buy price secures an initial yield on cost (YoC) of 2.49%, which is just below the 2.5% level I prefer to start at. However, TROW is growing its dividend at a healthy pace and I'm sure YoC will pop above 2.5% soon:
 1 Year  3 Year  5 Year  10 Year 

In the following 10-year chart, my buy price is indicated. Notice how TROW has outperformed the S&P 500, almost doubling its performance:

Source: Scottrade

An investment in TROW ten years ago would have returned 210%, including dividends. YoC would now be 9%! Of course, past performance does not guarantee future results, but if my investment in TROW delivers similar results over the next 10 years, I would be a very happy dividend growth investor indeed!

Source: GuruFocus

Analysis of TROW

My fair value estimate of TROW is $88.00, so I bought shares at a discount of nearly 6%. The following table provides some key statistics, with highlighted values relating directly to my selection criteria.

TROW passes the following of my selection criteria:
  • A streak of at least 5 years of dividend increases (29 years)
  • Chowder rule: Dividend yield plus 5-year CAGR exceeds 8% (14.46%)
  • Debt to equity ratio is below 50% (0%)
  • Price to earnings ratio (P/E) is less than 20 (TTM 18.74x and Forward 15.62x)
  • P/E to annual EPS growth (PEG) ratio is less than 2 (1.37)
  • 5-year CAGR is at least 10% (11.97%)
  • Reasonable confidence in continued dividend growth (Yes)
  • Price discount is at least 5% of fair value estimate (5.52%)
TROW fails the following of my selection criteria:
  • Dividend yield exceeds 2.50% (2.49%)
  • Earnings per share (EPS) percentage payout is less than 40% (46.49%)
Based on these statistics, TROW earns 6 out of a possible 7 stars: (******-)

The following chart shows TROW's dividend payments and EPS over the last 10 years. Earnings growth is solid and it is evident that the company's growing dividend is sufficiently covered:

Other ratings for TROW

 Zacks 3-Hold
 S&P Capital IQ's Stock Report (****-) Buy
 Thomson Reuters StockReport+  (10/10) Positive  
 MorningStar Rating (***--)
 The Motley Fool's CAPS Rating  (****-)
 TheStreet Ratings Buy [A]

Concluding Remarks

As a Dividend Champion, TROW has a tremendous record of dividend increases. In a Seeking Alpha article by Harvesting Dividends, the author writes that TROW has increased its dividend by at least 10% in 19 of the past 25 years.

Recently, the company declared a new quarterly dividend of 52¢ per share, an 18% increase over the previous quarterly dividend of 44¢ per share. At the same time, TROW declared a special dividend of $2.00 per share. While I missed the 12 March ex-dividend date for the regular dividend, I'll be getting the special dividend! The ex-dividend date for the special dividend is 7 April.

The company has no debt and substantial amounts of cash on hand. During 2014, TROW repurchased 5.3 million shares for $415.5 million at an average price of $78.40 per share. Last year, the board of directors approved an increase in the company's share repurchase authorization by 15 million shares. Together with the unutilized portion, TROW can now repurchase 20.9 million shares.

There are a few risks to be aware of, including the impact of client terminations due to asset owners reducing their U.S. equity exposure and/or seeking passive strategies. To retain clients and assets under management, TROW would need to offer and promote alternative investment vehicles, or incur significant expenditures to attract new investment advisory clients.

30 shares of TROW adds $52.80 to DivGro's projected annual dividend income. I've updated my portfolio to reflect this purchase.

What do you think of TROW? Would the special dividend of $2 per share sway you to buy shares?


  1. I added TROW shortly after my analysis went up. Really like this company over the long term and asset managers in general. I wouldnt mind adding another one into the mix. The $2 special dividend is a nice bonus to go aling with an excellent DG company.

    1. Thanks for the update! I couldn't find a post reporting the buy, but maybe I just missed it...

      Yes, I like TROW too -- thanks to your analysis and other DGI buyers, which alerted me to TROW, I now am a shareholder too!


  2. Hi DivGro,

    Thanks for the mention. TROW does look like a nice dividend growth stock to hold on to for years. It is nice that so many dividend investors decided to buy it at almost the same time.

    Good luck in your dividend investing journey!


    1. You're welcome, DGI -- I like to think that several dividend investors are recognizing the value in TROW and like what they're seeing!

      Take care!

  3. Ferdi,

    Glad to be a fellow shareholder. And thanks for the mention!

    Love the fundamentals with TROW. Some of the strongest around. Looking forward to collecting dividends for years to come.

    Best wishes!

    1. Thanks, Jason!

      Good to join the party. Great writeup, which along with others alerted me to the stock. I agree the fundamentals look great. Also looking forward to that special dividend!

  4. Great buy. I've had TROW on my watchlist for a while. I think I need to gobble some share up soon.

    1. Thanks, Dividend Dreams. I really like TROW and look forward to seeing how it performs over the longterm. Good luck with your purchase if you decide to go ahead with it.


  5. Thanks for the post, just added TROW at the top of my watch list :)

    1. You're welcome, FabSavings! Remember to do your own due diligence, and good luck!


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