Friday, March 18, 2016

Recent Buy: T. Rowe Price Group Inc

March 16, 2016: Bought 35 shares of TROW at $71.39 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 30-year streak of consecutive dividend increases. It pays quarterly dividends of 54¢ per share in the months of January, April, July and October.

I already own 30 shares of TROW, which I bought in March 2015 at an initial yield on cost (YoC) of 2.49%. At $71.39 per share, this buy equates to a YoC of 3.03%.

Adding 35 shares at a lower price reduces my overall cost basis to $76.93 per share. YoC now averages 2.81%. While the yield is not stellar, what interests me most about TROW is the company's healthy dividend growth rate:
 1 Year  3 Year  5 Year  10 Year 
18.2%15.2%14.0%16.3%

Here is a 5-year price chart indicating my buy prices:


Since my original buy of TROW near the 52-week high, the share price has been drifting lower. Nevertheless, I still like TROW and if it continues to decline, I'll find another opportunity to buy more shares.

Valuation-wise, TROW is trading below fair value based on the following 10-year chart, which plots the share price relative to cash flow (CFL). The CFL growth rate of 8% over the period is solid, though estimates of CFL for the next 2 years are lower.


Morningstar's fair value estimate for TROW is at $77, while S&P Capital IQ has a fair value esimate of $73. Either way, I've purchased shares at a nice discount!

Following is a table containing updated ratings of TROW from various sources:


 Dividend.com's DARS Rating  3.4/5
 MorningStar Rating (***--
 S&P Capital IQ's Stock Report Buy (****-) Quality:A- 
 Thomson Reuters StockReport+  (7/10) Neutral  
 The Motley Fool's CAPS Rating (*****) 
 TheStreet Ratings Buy [B-]
 Zacks Rank (Style Score)  4-Sell (VGM:D)

TROW has no debt on its books and tends to return cash to shareholders in the form of dividends and share buybacks. In 2015, the company took advantage of the weakness in its share price and bought back $988 million of its stock, reducing the outstanding share count by 5%. The company has ample liquidity, with cash and sponsored portfolio investment holdings of nearly $2.8 billion. I believe the company will continue its aggressive share buyback program as long as the share price remains deflated.

35 shares of TROW adds $75.60 to DivGro's projected annual dividend income. I've updated my portfolio to reflect this purchase.

What do you think of TROW? Do you own shares or are you interested in buying shares? Let me know your thoughts on TROW below in the comments section. Thanks for reading!

8 comments :

  1. DivGro,

    One thing I will always remember as one of the best pieces of investing advice I ever received; a company with no debt is hard to topple. I think you've got a solid reinvest here with TROW. Cash in those dividends while it's hot and maybe even average down on it further if you have some spare cash later and it drops any further.

    -Dividend Reaper

    ReplyDelete
    Replies
    1. Hi Dividend Reaper -- I cannot agree with you more! No cash is a winner, and TROW's dividend payout ratio is quite sensible on top of that... so its a great dividend growth company. Thanks for dropping by and best of luck with your own investments!

      Cheers
      FerdiS

      Delete
  2. Solid buy with TROW. No debt, 30+ years of dividend increases, good ROE and an attractive valuation make it a great buy for any dividend growth portfolio.

    ReplyDelete
    Replies
    1. Hi Money Grower UK -- thanks for visiting and commenting! You mention a number of additional attractive points about TROW, which I didn't even cover. Lots to like about TROW!

      Delete
  3. Hi Ferdi,

    Great buy. I picked up shares in March 2015 as well and again in October 2015. I keep a close eye on TROW stock. I feel it's undervalued. I will most likely join you soon and buy more shares.

    ReplyDelete
    Replies
    1. Thanks, Investment Hunting! Looks like you and I both like TROW! Best of luck and I hope you get a good price if you buy more shares!

      Delete
  4. Really like this company for the simple fact of no debt! It's especially hard to find companies like that these days in the ZIRP situation we are in right now. So many companies taking on debt to buy stock/pay dividends/etc. and here is one solid company that can do all those things and not have debt. Beautiful.

    ADD

    ReplyDelete
    Replies
    1. ADD, you're so right! TROW has accomplished a lot without taking on debt. I like the conservative approach to their business. And they're growing the business at a good pace without taking on debt that requires interest payments.

      Take care!
      FerdiS

      Delete

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