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:
- Dividend Growth Investor: T. Rowe Price Group (TROW) Dividend Stock Analysis
- Dividend Mantra: Recent Buy: T. Rowe Price Group
- Two Investing: March Purchases – T, CAT, GE, JNJ, KKR, TROW, V
- Dividend Vet: Acquisition
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:
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!
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%)
- Dividend yield exceeds 2.50% (2.49%)
- Earnings per share (EPS) percentage payout is less than 40% (46.49%)
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
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?